SAP SE (NYSE:SAP) stock rose 1.67% (As on October 23, 11:37:49 AM UTC-4, Source: Google Finance) after the company reported higher third-quarter revenue and operating profit, bolstered by continued momentum in its cloud business and improving profit margins. The enterprise resource planning giant also guided full-year operating profit toward the top of its earlier forecast. Although cloud revenue came in slightly below estimates, the company reaffirmed that cloud is the foundation for long-term growth. Operating profit climbed 15% at constant currencies, to $2.98 billion. Net income grew 29%, to $2.15 billion. SAP said operating profit was hurt by roughly $116 million from a change in tax-related case law and an equal amount tied to a workforce transformation program. The company expects to incur an additional $116 million in related expenses during the fourth quarter. SAP’s core cloud business continues to thrive, up 27%, to $6.13 billion, although slightly below analyst projections of $6.17 billion. Cloud revenue has grown more than 25% for five quarters in a row and now accounts for 58% of total sales, up from 51% a year earlier.
Moreover, the company’s Cloud ERP Suite, which underpins its enterprise software strategy, grew 31%, to $5.33 billion. Current cloud backlog, which is considered an indicator of future subscription revenue, rose 27%, to $21.85 billion. The figure reflects sustained customer demand even after incorporating last year’s acquisition of application usability specialist WalkMe Ltd. into the comparison. The share of predictable revenue increased by two percentage points to 87%, underscoring SAP’s continued shift to recurring, subscription-based income. Traditional software license sales fell 43%, to $186 million, as the company rapidly divests itself of its legacy on-premises business.
SAP in the third quarter of FY25 has reported the adjusted earnings per share of $1.84, beating the analysts’ estimates for the adjusted earnings per share of $1.73. The company had reported the adjusted revenue growth of 11 percent to $10.53 billion in the third quarter of FY25, which is inline with the analysts’ estimates for revenue of $10.53 billion.
SAP reaffirmed its growth outlook for 2025 but adjusted expectations to reflect currency pressures. The company now expects operating profit to reach the upper end of its previous forecast range of $11.95 billion to $12.30 billion.
However, it adjusted full-year cloud revenue toward the lower end of its prior forecast of $25.06 billion to $25.40 billion and raised free cash flow expectations slightly to $9.28 billion to $9.51 billion. The company warned that foreign-exchange movements would subtract about seven percentage points from fourth-quarter cloud growth.