SAP SE (US) ((SAP)) has held its Q2 earnings call. Read on for the main highlights of the call.
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SAP SE’s recent earnings call painted a picture of robust financial health, underscored by impressive growth in cloud revenue, operating profit, and free cash flow. The sentiment was largely positive, driven by strategic partnerships and AI-driven innovations. However, the company is not without its challenges, facing global market uncertainties, a decline in software license revenue, and elongated sales cycles due to trade policies.
Strong Cloud Revenue Growth
SAP reported a remarkable 28% year-on-year increase in cloud revenue, primarily driven by the Cloud ERP Suite, which itself grew by 34% in Q2. The current cloud backlog also saw a significant rise, reaching EUR 18.1 billion, marking a 28% increase. This growth underscores SAP’s successful transition towards cloud-based solutions.
Operating Profit Surge
The company’s non-IFRS operating profit surged by 35% to EUR 2.6 billion, highlighting strong margin expansion and effective cost management. This surge reflects SAP’s ability to optimize costs while expanding its market reach.
Record Free Cash Flow
SAP achieved a record free cash flow, which increased by 83% to EUR 2.4 billion. This was supported by higher profitability and positive developments in working capital, showcasing the company’s strong financial management.
Strategic Partnerships and Customer Wins
SAP’s strategic partnerships and customer wins were a highlight, with collaborations with major companies like Alibaba, GSK, Balmain, Replay, BMW, and L’Oreal. These partnerships underscore SAP’s diverse portfolio and strong market presence.
AI and Innovation Initiatives
SAP’s AI initiatives are driving productivity, with internal use cases leading to significant efficiency gains. The company plans to release a total of 40 AI agents by the end of the year, emphasizing its commitment to innovation.
Uncertainty in Global Markets
Despite its successes, SAP acknowledges ongoing uncertainty in global markets. This uncertainty is impacting approval workflows in sectors like the U.S. public sector and manufacturing, largely due to tariffs.
Software Licenses Revenue Decline
Software licenses revenue saw a 13% decline in Q2, reflecting SAP’s strategic shift towards cloud solutions. However, this decline also indicates challenges in traditional software sales.
Impact of Trade Policies
SAP is experiencing elongated sales cycles in sectors such as the U.S. public sector and manufacturing due to geopolitical uncertainties and trade policies, which are affecting its transactional business.
Transactional Business Decline
Transactional revenues were disappointing, with declines attributed to factors such as reduced travel and workforce dynamics, highlighting areas for potential improvement.
Forward-Looking Guidance
Looking ahead, SAP remains optimistic about sustaining its momentum into the second half of 2025. The company expects to continue its strong performance, with cloud revenue projected to rise further, supported by the Cloud ERP Suite’s consistent growth. Despite global market uncertainties and elongated sales cycles in certain sectors, SAP’s robust pipeline and strategic partnerships are expected to drive future success.
In conclusion, SAP SE’s earnings call conveyed a strong overall sentiment, with significant achievements in cloud revenue and operating profit. While challenges remain, particularly in traditional software sales and global market uncertainties, SAP’s strategic initiatives and partnerships position it well for continued growth. Investors and market watchers will be keen to see how SAP navigates these challenges and capitalizes on its strengths in the coming quarters.