SAP Stock Drops After Earnings. Cloud Revenue Fell Short.

SAP stock has slipped over the past three months, dragged down by a weaker-than-expected second-quarter earnings report. (Dreamstime)

Key Points

• SAP’s third-quarter adjusted earnings per share rose to 1.59 euros, exceeding estimates, while revenue of 9.076 billion euros slightly missed expectations.
• Cloud revenue increased by 22% year over year, now comprising 58% of SAP’s total sales, though it fell short of analysts’ projections for the quarter.
• SAP lowered its 2025 revenue forecast but slightly raised its call for adjusted operating profit. The euro’s strength is affecting revenue growth in its cloud business.

SAP reported mixed third-quarter earnings results Wednesday afternoon. Its shares were down in after-hours trading.

Adjusted earnings per share were up to 1.59 euros ($1.85), ahead of Wall Street’s consensus estimate of €1.49, according to FactSet, and up from €1.23 last year. Revenue for the quarter reached €9.076 billion, just behind expectations of €9.083 billion, and up 7.2% on the year.

A bigger shortfall was in the all-important cloud unit, with third-quarter revenue of €5.29 billion. Analysts had projected €5.32 billion.

SAP CFO Dominik Asam said that was partly due to the mechanics of how revenue is booked, with some slippages from the first half of the year weighing on cloud revenue.

“In the last innings of the quarter we really signed some major deals, plus there are some green shoots in specific sectors,” he told Barron’s, pointing to a $1 billion contract the software provider signed with the Department of Defense.

SAP stock was down 2.9% ahead of the U.S. opening bell.

SAP is undergoing a shift in business models pioneered by another enterprise-software titan, Microsoft. The legacy packaged software model led to customers holding on to licenses as long as possible, and there was no reliable annual income aside from support contracts.

By moving customers to the cloud, software companies get more regular cash flows from subscriptions. Customers can make up for that with savings on the internal IT expenses that went into managing software that is now in the cloud.

For SAP, the center of this shift is the Cloud ERP Suite, the cloud version of SAP’s core offering. Enterprise resource planning is a single system that runs a variety of corporate back-office services, such as finance, human resources, and supply-chain management.

Third-quarter cloud revenue grew by 22% over last year, while sales from the rest of SAP sank by 8%. Cloud now accounts for 58% of SAP sales, up from 51% last year.

SAP narrowed its outlook and now expects 2025 revenue to come in at the lower end of the range of the previous forecast, but it also slightly raised its guidance for adjusted operating profit.

The company, which is based in Germany, continues to suffer from the strength of the euro. The company is projecting that exchange-rate effects will subtract seven percentage points from cloud revenue growth in the fourth quarter.

SAP stock has been struggling lately. Its American depositary receipts are down about 9% over the past three months, sliding after its second-quarter revenue and cloud sales missed analysts’ expectations. The S&P 500 is up about 7% over the same period.

Created with Highcharts 9.0.1SAPSource: FactSet

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The rough patch has taken some of the shine off Europe’s third most-valuable company, which had previously looked like the continent’s only tech name capable of taking on the U.S. Magnificent Seven. SAP shares have tripled over the past three years, powered higher by the artificial-intelligence boom driving sales for its cloud business.

The stock accounted for half the gains in Frankfurt’s flagship DAX index last year.

Write to George Glover at george.glover@dowjones.com or adam.levine@barrons.com