SAP (SAP.US) Q3 revenue broke the 10 billion euro mark for the first time. Annual cloud business revenue is expected to reach the high end of the guideline range

The Zhitong Finance App learned that German software giant SAP SE (SAP.US) achieved the quarterly revenue milestone of breaking 10 billion euros for the first time in the third quarter, and that cloud business growth exceeding expectations indicates that the artificial intelligence (AI) boom has not weakened market demand for its products. The company also expects full-year cloud business revenue to reach the high end of the previous guidance range. As of press release, SAP's US stocks rose more than 2% after the market on Wednesday.

According to financial reports, SAP's third-quarter revenue increased 13% year over year to 10.27 billion euros, exceeding 10 billion euros for the first time in a single quarter. In terms of profit, non-IFRS operating profit was 3.03 billion euros, up 18% year on year, breaking 3 billion euros for the first time in a single quarter; non-IFRS operating profit margin was 29.5%, up 1.2 percentage points year on year. IFRS basic earnings per share were 1.96 euros, up 14% year over year; non-IFRS basic earnings per share were 1.89 euros, up 19% year over year, higher than analysts' unanimous expectations of about 1.83 euros. Free cash flow increased 36% to 1.72 billion euros.

Cloud business revenue increased 26% in the third quarter to 6.67 billion euros, better than analysts' general expectations of 6.57 billion euros. SAP said that the increase in cloud business revenue was due to customers resuming investment after getting out of “financial difficulties.”

At a fixed exchange rate, the SAP cloud business order backlog increased 26% to 24.14 billion euros, higher than the 24% to 25% increase previously predicted by UBS. SAP's order backlog is seen as an important indicator of global enterprise technology spending, as the company's software suite provides accounting and payroll management services to many of the world's largest enterprises.

SAP develops enterprise-grade software to manage finance, human resources, and other core business functions. In recent years, SAP has encouraged customers to move from legacy software systems installed on local servers to the cloud. Currently, most of SAP's revenue comes from remote access services. The company plans to end regular support for old products next year, after which the cost of maintaining traditional services will rise.

SAP currently expects subscription revenue in 2026 — that is, the right for customers to rent software remotely rather than buy and run the software themselves — to reach the upper end of the expected range of 25.8 billion to 26.2 billion euros, corresponding to a year-on-year increase of 23% to 25%. Taking into account the declining traditional software licensing business, SAP expects annual revenue to reach 36.3 billion to 36.8 billion euros, an increase of 12% to 13% over the previous year. SAP maintained its annual operating profit guideline, which was 11.8 billion to 12.2 billion euros at a fixed exchange rate.

SAP CEO Christian Klein said it was “an excellent quarter.” He said customers are “investing in technology that supports the company's AI strategy.” New cloud customers include AstraZeneca, Infineon, and Henkel.

SAP shares have rebounded after a massive software stock sell-off earlier this year as the market feared that powerful new AI tools would replace traditional applications. Christian Klein is pushing the Walldorf, Germany-based company to restructure around AI. Christian Klein began taking direct responsibility for the development of new technology after customers were slow to adopt SAP AI tools and criticized their cost performance ratio. He has stated that AI will be the key to the company's future growth.

Analyst Derrick Wood, TD Cowen, and others said in a report before the results were announced that the adoption of SAP AI tools “is progressing better than many other enterprise-grade AI products, but it is still not the main driving force for order growth.”