SAP SE (US) ((SAP)) has held its Q4 earnings call. Read on for the main highlights of the call.
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SAP SE’s recent earnings call exuded a predominantly positive sentiment, centered on notable achievements in cloud growth, AI advancements, and operational efficiency. Despite challenges such as declining software licenses revenue and certain customer transition issues, the overarching outlook remains optimistic as the company continues to strategize for sustained growth.
Record Cloud Backlog
SAP reported a record cloud backlog of €63 billion at the close of 2024, reflecting a 40% increase over the previous year. This substantial growth underscores the company’s successful shift towards cloud-based solutions, setting a strong foundation for future revenue streams.
Strong Cloud Revenue Growth
The company’s cloud revenue saw a robust 27% expansion in Q4 2024. This impressive growth has contributed to SAP’s double-digit total revenue growth for the third consecutive quarter, signaling the increasing importance of cloud services in SAP’s business model.
AI Innovation and Adoption
SAP is making significant strides in AI, with around half of its cloud order entries in Q4 incorporating AI use cases. This highlights SAP’s commitment to integrating AI into its offerings, enhancing product capabilities, and driving business innovation.
Customer Wins and Go-Lives
SAP secured major contracts with industry giants such as BP, Total Energies, BASF, IBM, and General Motors. These deals not only illustrate SAP’s competitive market positioning but also its capability to meet diverse enterprise needs.
Improved Cloud Gross Margin
The non-IFRS cloud gross margin increased by 1.4 percentage points to 73.3% in 2024, bolstered by robust cloud revenue performance. This improvement signifies enhanced operational efficiency and better financial management within the cloud domain.
AI-Driven Operational Efficiency
Through AI implementations, SAP achieved an operational efficiency effect worth €300 million in 2024, with projections to exceed €0.5 billion soon. This demonstrates the significant cost-saving potential of AI in streamlining operations.
Software Licenses Revenue Decrease
Software licenses revenue saw a 21% decline year-on-year, reflecting SAP’s strategic transition from traditional software to modern cloud-based offerings. This shift aligns with changing market demands and SAP’s long-term vision.
Increased Tax Rate
SAP maintained a non-IFRS tax rate of 32% for 2024, aligning with previous guidance. However, this consistency in tax rate also contributed to higher overall tax expenses, impacting the company’s net earnings.
Challenges with Large Customer Transitions
To address issues faced by some large customers in transitioning to the cloud, SAP introduced a private edition option. This initiative aims to ease the transition process before the end of maintenance deadlines, ensuring customer satisfaction and retention.
Looking Ahead: Forward-Looking Guidance
In its forward-looking guidance, SAP highlighted the expectation of accelerated double-digit total revenue growth and operating profit expansion through 2027. This optimistic outlook is driven by ongoing AI innovations and strategic commercial initiatives, positioning SAP for continued success.
In conclusion, SAP SE’s earnings call reflects a predominantly positive sentiment, supported by significant advancements in cloud services, AI integration, and operational efficiency. Despite facing certain challenges, the company’s strategic initiatives and forward-looking guidance suggest a robust growth trajectory in the coming years.
