Shares of SAP AG (SAP) jumped in after-hours trading after the software company reported earnings for its first quarter of Fiscal Year 2025. Earnings per share came in at €1.44, which beat analysts’ consensus estimate of €1.31 per share. In addition, sales increased by 12% year-over-year, with revenue hitting €9.013 billion. However, this slightly missed analysts’ expectations of €9.06 billion.
Nevertheless, this performance was driven by strong growth in its cloud business. Current cloud backlog rose by 28% year-over-year to €18.20 billion, while cloud revenue grew by 27% to €4.99 billion. Cloud ERP Suite revenue saw an even bigger jump of 34% to €4.25 billion. However, software licenses revenue declined 10%, and services revenue dipped 1%. Still, Cloud profit margins also improved, thanks to cost savings from SAP’s 2024 transformation plan.
In addition, SAP continued to buy back its own stock under a €5 billion share repurchase program and has spent €3.1 billion as of the end of March. It completed a third part of the program in April, which added another €1.5 billion. The company also finished its restructuring plan and has already paid most of the costs.
2025 Outlook
For 2025, SAP has provided the following outlook:
- Cloud revenue of €21.6 to €21.9 billion
- Cloud and software revenue expected to be €33.1 to €33.6 billion
- Non-IFRS operating profit projected at €10.3 to €10.6 billion
- Free cash flow expected to be around €8.0 billion
- Current cloud backlog growth is expected to slightly decelerate in 2025
It is worth noting that the expected deceleration in cloud backlog growth comes after a solid increase in the previous quarter, as per the image below from Main Street Data.
Is SAP Stock a Good Buy?
Turning to Wall Street, analysts have a Strong Buy consensus rating on SAP stock based on six Buys and one Hold assigned in the past three months, as indicated by the graphic below. Furthermore, the average SAP price target of $316.48 per share implies 25.1% upside potential. However, it’s worth noting that estimates will likely change following today’s earnings report.
