SAP confirms profit and sales outlook as cloud business boosts revenue

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SAP SE, the German business software company, confirmed its profit and sales outlook for the year after posting higher third-quarter revenue led by growth at its cloud business.

Reporting on a non-IFRS basis, the Walldorf, Germany-based company SAP, +0.14% SAP, -0.07% said Tuesday that revenue jumped to 7.84 billion euros ($7.74 billion) from EUR6.85 billion, with cloud revenue up to EUR3.29 billion from EUR2.39 billion. Software-licenses revenue fell to EUR406 million from EUR657 million.

Analysts polled by FactSet had forecast overall revenue of EUR7.65 billion, and cloud revenue of EUR3.19 billion.

“We have delivered a strong cloud quarter with accelerating momentum across all key cloud indicators,” SAP Chief Financial Officer Luka Mucic said. The company said its cloud business performed strongly in all regions led by the U.S. and Germany, while activity in Brazil, China, India and Switzerland was particularly robust.

SAP is moving away from software-licenses sales, once its biggest revenue streams, to subscription-based cloud services, banking on a more profitable and predictable model based on recurring revenue.

“With a recurring revenue share of more than 80%, it’s clear that our transformation has reached an important inflection point, paving the way for continued growth in the future,” SAP Chief Executive Christian Klein said.

Operating profit for the quarter slipped to EUR2.09 billion from EUR2.10 billion a year earlier, with SAP’s operating margin down to 26.7% from 30.7%. Analysts polled by FactSet had forecast operating profit of EUR2 billion.

SAP, like other European software companies, presents its figures as two sets of numbers. One set is based on the International Financial Reporting Standards–an international accounting method that seeks to provide a global reporting standard–though analysts and investors tend to follow SAP’s non-IFRS numbers. Those figures exclude share-based compensation, restructuring expenses and acquisition-related charges.

For the year, SAP continues to expect non-IFRS operating profit at constant currencies between EUR7.6 billion and EUR7.9 billion, and cloud revenue at constant currencies between EUR11.55 billion and EUR11.85 billion. However, free cash flow is now expected at roughly EUR4.5 billion against a previous forecast above EUR4.5 billion.

Looking ahead, SAP is still targeting double-digit growth in operating profit for 2023, though the company said it expects to update midterm targets in the coming quarters, citing the strong cloud momentum and favorable currency movements.

Write to Mauro Orru at mauro.orru@wsj.com; @MauroOrru94

This article was originally published by Marketwatch.com. Read the original article here.

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