SAP SE’s shares rose the most since July as cloud revenue soared at Europe’s biggest software company, which is transitioning customers away from locally run systems with the promise of artificial-intelligence tools and analytics.
Cloud revenue rose 25% in the third quarter from a year earlier to €4.35 billion ($4.7 billion), the Walldorf, Germany-based company said in a statement on Monday, roughly in line with analysts’ estimates. The firm’s cloud backlog, which reflects sales that will be booked over the next twelve months, gained 25% to €15.4 billion.
Shares of the company rose as much as 5.8% in Frankfurt on Tuesday, the most since July 23.
SAP has prospered even as Germany’s economy stalls, with gross domestic product forecast to contract for a consecutive second year in 2024. The software company’s customers are shifting to the cloud, where the company has been beefing up its offerings of AI services for enterprise users. Cloud business promises higher average spending per client than SAP’s legacy on-premise software.
SAP raised its 2024 outlook for some financial metrics, including free cash flow, which is now seen at €3.5 billion to €4 billion, from about €3.5 billion previously. Its guidance for 2024 cloud revenue remains €17 billion to €17.3 billion at constant currencies, up 24% to 27%.
Chief executive officer Christian Klein is seeking to accelerate the shift to the cloud, in part using a new AI-focused strategy announced early this year. About 30% of cloud deals in the third quarter contained business AI use cases, Klein said on a call with journalists after the results.
"By the end of this year, we want to have 80% of the most frequent SAP use cases in AI so we can bring tremendous productivity to our customers,” chief financial officer Dominik Asam said in an interview on Tuesday. “But in terms of monetisation, we are still in the early innings.”.
Around 10,000 jobs will be affected as part of a restructuring associated with the new strategy, which cost €2.8 billion in the first nine months.
The growth comes even as there’s been high turnover on the executive board. Chief marketing officer Julia White and chief revenue officer Scott Russell left the company in August. Chief Technology Officer Jürgen Müller departed last month and faces a criminal probe from German prosecutors over inappropriate conduct.
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SAP is also facing a civil investigation in the US, its biggest market. The Justice Department is looking into whether the company illegally conspired with product reseller Carahsoft Technology Corp. to fix prices with almost 100 government agencies, Bloomberg News reported this month.
(Updates with shares in the third paragraph)
