Dusseldorf A year ago, Europe’s most valuable software company had to go through a crisis. CEO Christian Klein reduced the targets and said goodbye to the ambitious projects of his predecessor. Investors acknowledged the decision with a price slide of more than 20 percent. Today Klein thinks the step is just right.
When presenting the figures for the third quarter, Klein said on Thursday: “We have absolutely made the right decision.” Klein was able to raise the targets for this year, which were initially reduced, three times – the last time last week. For the third quarter, Klein was also able to announce a sales growth of five percent to 6.84 billion euros.
The most important driver of this development was cloud revenues. They rose by 20 percent to 2.39 billion euros. Incoming orders in the cloud business developed even more strongly. The Current Cloud Backlog, which shows the contractually guaranteed revenues for the next twelve months, rose by 24 percent to 8.17 billion euros.
During the corona pandemic, companies apparently increasingly decided to move their business processes to the cloud. And SAP was able to position itself here as an important partner.
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No area is as important for SAP as the management of business-critical processes such as procurement, controlling or finance, called Enterprise Resource Planning (ERP) in industry jargon. Here, Klein was able to record sales growth of 46 percent to 276 million euros in the new cloud version of the core product S / 4 Hana. “At SAP, we’ve never seen such rapid growth in a newly launched product”; said Klein. In addition, SAP is not only able to persuade existing customers to switch to the cloud. SAP is also reaching new customers. “We are gaining market share,” said Klein.
“Very strong development in the cloud business”
In comparison with the competition, SAP is still in a poor position. The market researcher Gartner rates the ERP solutions in the cloud from its competitors Oracle, Microsoft and Infor significantly better than SAP. Klein admitted the strong evaluation of the competition, but said that it had to do with the fact that S / 4 Hana Cloud was still a relatively new product. “We are also getting increasingly better ratings from Gartner,” said Klein.
Of the more than 17,500 customers of S / 4 Hana, more than 4,000 already use the cloud solution, said CFO Luca Mucic. “We are seeing a very strong development in the cloud business,” said the CFO.
The switch to cloud solutions has an important effect on SAP’s long-term business. Customers no longer just buy large software licenses once, but generate constant sales through long-term contracts. 77 percent of sales are now “easier to plan,” said SAP in its third-quarter announcement. That was three percentage points more than in the previous quarter.
However, the change is temporarily affecting the result. On the one hand, the restructuring of the business model initially requires high investments. On the other hand, when signing new contracts, SAP does not initially generate very high sales with the sale of an expensive license, but instead enters into agreements on longer-term cloud contracts.
This was also evident in the figures presented for the third quarter. The operating result fell by 15 percent to 1.25 billion euros, the operating margin by 4.3 percentage points to 18.2 percent.
According to the recently raised forecast, Christian Klein expects even stronger business for the year as a whole. The range for revenue from the cloud business is now between 9.4 and 9.6 billion euros, 100 million euros more than before. The operating result should be between 8.1 and 8.3 billion euros, also a slight improvement.
More: SAP raises forecast for the third time this year – share rises sharply.