Soaring cloud division turns things around for SAP after annus horribilis that was 2020

A year after outlining horrific calendar Q3 financials that caused the share price to crash by €28bn, SAP had no nasty surprises up its sleeves this time.

In fact the company raised its full-year outlook for the third time in 2021, such is the confidence with which SAP now views its cloud biz. It is estimating sales to grow by up to 19 per cent year-on-year, and operating profit to be between flat to a decline of 2 per cent, better than the earlier projection of a 4 per cent drop.

The preliminary results for the latest quarter ended 30 September show turnover of €6.84bn, up 5 per cent on the corresponding quarter of 2020. Among the highlights, cloud revenue jumped by a fifth to €2.39bn and software licences and support fell 1 per cent to €3.52bn, so lots of customer have migrations to do.

"Our strategy is clearly working," said the breathless CEO, Christian Klein. "Customers are choosing SAP for their business transformation in the cloud. We see record adoption of our applications and our platform. This has resulted in strong acceleration of our cloud growth."

His tone is remarkably different to October 2020 when it became apparent that COVID-19 had sped up the shift to the cloud, casting a shadow over the legacy vendors still reliant on doing business the way they always had.

SAP said today that corporations are "re-evaluating their business models with increased urgency given the dramatic changes due to the pandemic and their ongoing focus on digital transformation."

The RISE with SAP programme was introduced in January to help make it easier for customers to step into SAP's cloud.

Not everyone is convinced in the benefits of RISE but, seemingly, many are. SAP said it had a cloud backlog of €8.17bn in Q3, up 24 per cent from €6.6bn a year ago. The S/HANA cloud backlog itself was 60 per cent higher year-on-year at €1.28bn.

Not all that glitters is gold, however, and operating profit for Q3 decreased 15 per cent to €1.25bn and operating margin fell 4.3 per cent to 18.2 per cent "due to higher sharer-based compensation expenses (primarily related to Qualtrics)".

SAP decided to float Qualtrics in July 2020 less than two years after convincing the survey-monkey-with-knobs-on company not to list itself.

The numbers outlined by SAP are preliminary and so subject to change. ®

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