SAP SE Earnings - Q3 2025 Analysis & Highlights
Key Takeaways
SAP SE's Q3 2025 earnings call highlighted strong cloud revenue growth, particularly in the Cloud ERP Suite, and an increased focus on AI-driven business transformation. The company confirmed its ambition to accelerate total revenue growth through 2027, emphasizing AI as a key enabler. While adjusting cloud revenue outlook to the lower end of the range due to delayed bookings, SAP expects to reach the upper end of its operating profit outlook and exceed its free cash flow target.
Key Financial Results:
Cloud revenue rose 27% in Q3.
Cloud revenue has grown more than 25% for five quarters in a row.
Cloud gross margin was about 75% in Q3.
Total revenue growth was 11%.
Current cloud backlog increased 27%.
Free cash flow increased by 5%.
Non-IFRS operating profit was up 19% to €2.6 billion.
IFRS operating profit increased 12% to €2.5 billion in the quarter.
Software licenses revenue decreased by 42% in Q3.
Predictable revenue rose by 2 percentage points to 87%.
Business Segment Results:
Cloud ERP Suite delivered 31% growth in Q3.
Cloud ERP Suite represents 87% of cloud revenues and more than 100% of the year-over-year increase in cloud revenues.
Capital Allocation:
Not explicitly discussed; however, the company anticipates another €100 million of expenses to be recognized in Q4 2025 related to the workforce transformation.
Industry Trends and Dynamics:
SAP grew 10 percentage points faster than the rest of the market in 2024, according to a recent IDC study.
Digital transformation remains a key trend.
Customers are adopting solutions across the entire business suite, including Business Data Cloud and AI.
Competitive Landscape:
SAP is gaining market share.
The company emphasizes its strategy of providing software and cloud solutions with strong cloud infrastructure partners, rather than building its own infrastructure.
SAP's Cloud ERP Suite is experiencing strong market share gains.
Macroeconomic Environment:
The company acknowledged persistent challenges and uncertainties in the broader macroeconomic backdrop.
Experienced delayed bookings in the first half of the year, particularly in industrial manufacturing and the public sector.
Growth Opportunities and Strategies:
RISE with SAP is a key strategy, with customers like Alphabet, Ericsson, and Lufthansa opting for this journey in Q3.
GROW journey is playing out nicely, with AI companies like Perplexity, Konecta, and Kodiak AI embarking on this journey.
AI is becoming the key enabler of growth.
The company sees the potential to convert €1 of on-premise revenue into €5 and more of cloud revenue through RISE with SAP.
SAP NS2 was awarded a major framework contract with the US government.
Offering entire cloud portfolio in a customer data center at a highly competitive cost.
Focusing on high-value AI cases in B2B by combining LLMs with business processes and contextual data.
Introducing AI assistants in Joule to orchestrate AI agents across the company's value chain.
Doubling down on AI adoption internally to boost productivity.
Financial Guidance and Outlook:
The company confirms its ambition to accelerate total revenue growth through 2027.
Expects to reach the range of its cloud revenue outlook for fiscal year 2025 towards its lower end due to delayed bookings in the first half of the year.
Expecting to land towards the upper end of its operating profit outlook range.
Forecasts free cash flow to exceed the previous target of €8 billion.
Continues to expect CCB growth to slightly decrease in 2025.
