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SAP's Q4 Earnings and Revenues Rise Y/Y on Cloud Strength
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SAP SE (SAP - Free Report) delivered fourth-quarter 2023 non-IFRS earnings per share (EPS) of €1.41, which increased 44% from the year-ago quarter.
Driven by strength in the cloud business, SAP reported total revenues on a non-IFRS basis of €8.468 billion, which increased 5% year over year (up 9% at constant currency or cc).
SAP announced that it will be focusing on vital strategic growth areas, especially Business AI, and position the company for future growth. It will be taking up a restructuring program in 2024, whereby it plans to eliminate 8,000 positions across its operations. The majority of the affected positions is expected to be covered by voluntary leave programs and internal re-skilling measures, added management. It anticipates to exit 2024 at a headcount similar to current levels.
SAP expects to incur around €2 billion in restructuring expenses. The majority of these expenses are expected to be recognized in the first half of 2024, thereby affecting IFRS operating profit. The restructuring program is not expected to provide major cost benefits in 2024, per management.
Also, the company revised its guidance for some metrics for 2025. Non-IFRS cloud gross profit is expected to be €16.2 billion (including share-based compensation expenses of €0.1 billion) compared with an earlier projection of €16.3 billion (excluding share-based compensation expenses).
Non-IFRS operating profit is now anticipated to be €10.0 billion (which includes share-based compensation expenses of €2 billion) compared with €11.5 billion (excluding share-based compensation expenses) projected earlier.
Free cash flow is now forecast to be €8.0 billion compared with an earlier projection of €7.5 billion.
The company continues to expect cloud revenue of more than €21.5 billion and total revenue of more than €37.5 billion for 2025.
Following the announcement, shares of SAP are up 6% in the pre-market trading on Jan 24. In the past year, shares have gained 40.7% compared with the sub-industry’s growth of 57.2%.
Image Source: Zacks Investment Research
Cloud Results
Current cloud backlog — a key indicator of go-to-market success in cloud business — increased 25% (up 27% at cc) to €13.75 billion.
On a non-IFRS basis, the Cloud and software business (87.2% of total revenues) registered revenues of €7.386 billion, up 6% year over year (up 10% at cc).
Cloud revenues were €3.699 billion, up 20% year over year on a non-IFRS basis (up 25% at cc). SAP’s cloud business remained strong across Asia-Pacific, Europe, the Middle East and Africa, and the Americas region. It remained strong in Japan and Saudi Arabia, Brazil, Germany, France, India and South Korea.
Software licenses and support revenues totaled €3.687 billion, which decreased 5% (down 2% at cc) year over year. Non-IFRS software license revenues of €841 million declined 7% (down 6% at cc) year over year.
On a non-IFRS basis, cloud revenues related to Software as a Service increased 24% at cc to €2.894 billion. Cloud revenues related to Platform as a Service rose 46% at cc to €620 million. Cloud revenues related to Infrastructure as a Service declined 7% at cc to €184 million.
Services business (12.8% of total revenues) delivered revenues of €1.08 billion, which remained unchanged from the year-ago quarter (up 4% at cc).
The company previously had two reportable segments — Applications, Technology & Services (AT&S) and Qualtrics. However, in June 2023, it completed the sale of its entire stake in Qualtrics as part of the acquisition of Qualtrics by funds associated with Silver Lake and Canada Pension Plan Investment Board.
SAP now has AT&S as its only reportable segment and the Qualtrics segment is treated as discontinued operations. AT&S’ revenues were up 5% year over year (up 9% at cc) to €8.17 billion owing to solid cloud revenue growth on the back of rising demand for SAP S/4HANA and its Business Technology Platform.
Expanding Clientele Bodes Well
Rise with SAP solution was adopted by clients including Amer Sports, Coles Group, Covestro, Daikin Industries, Daimler Truck, Deutsche Telekom, Hilti, IBM, KONE, Kyndryl, Landis+Gyr, Marathon Petroleum, Marks and Spencer, Messe Frankfurt, Munich Airport, NEC Corporation, NVIDIA, Nestlé, OXG Glasfaser, SLB, Vodafone Group and Wärtsilä Corporation.
More companies have begun deploying S/4HANA solutions partly or entirely in the cloud. SAP S/4HANA cloud revenues increased 55% (up 61% at cc) year over year to €1.03 billion. SAP S/4HANA’s current cloud backlog was up 58% (up 61% at cc) year over year.
In the reported quarter, AES Indiana, Allianz, ARAG, DAK-Gesundheit, Tropicana Brands Group and Zurich Insurance Company went live on SAP S/4HANA Cloud.
SAP’s clientele continues to expand with additions of Ahold Delhaize, Airservices Australia, Beiersdorf, Bosideng, Delivery Hero, Douglas, DZ BANK, Ericsson, MATSUMOTO PRECISION, Mercedes-Benz Group, NEOM, Robert Bosch, TechnipFMC, TE Connectivity, Volkswagen and Wipro. These brands adopted SAP’s various solutions during the quarter under review.
GROW with SAP was adopted by Lowe Enterprises, Mangopay, Merida & Centurion Germany, Okuma Europe, Serrala Group and Solidia Technologies.
On Dec 13, 2023, SAP expanded its collaboration with IBM on AI and Quantum. IBM also deployed RISE with SAP solutions across the enterprise, thereby expanding its global reach. It is continuing the use of the cloud through the use of SAP Fieldglass and SAP Learning Hub.
Margin Details
Non-IFRS gross margin of 74.8% decreased 30 basis points (bps) from the year-ago quarter’s figure.
SAP reported non-IFRS operating expenses of €5.957 billion, up 8% from a year ago (up 12% at cc).
Non-IFRS operating profit of €2.51 billion decreased 2% on a year-over-year basis (up 2% at cc). Operating profit was affected by the accelerated amortization of capitalized sales commissions pertaining to the on-premise business and higher bonus accruals.
Non-IFRS operating margin of 29.6% contracted 210 bps on a year-over-year basis. At cc, the figure came in at 29.7% and contracted 210 bps from the year-ago figure.
Balance Sheet & Cash Flow
As of Dec 31, 2023, SAP had cash and cash equivalents of €8.124 billion compared with €9.378 billion as of Sep 30, 2023.
For the year ended on Dec 31, 2023, the company generated operating cash of €6.193 billion compared with €5.675 billion in the prior year.
For 2023, free cash flow was €5.083 billion compared with €4.388 billion in 2022.
2024 Outlook
Management anticipates cloud revenues in the range of €17-€17.3 billion, suggesting an increase of 24-27% at cc.
Cloud and software revenues are now expected to be between €29 billion and €29.5 billion, implying 8-10% growth at cc.
Management projects non-IFRS operating profit in the range of €7.6-€7.9 billion, indicating a rise of 17-21% at cc.
The Zacks Consensus Estimate for Watts Water Technologies’ 2023 EPS has improved by 1% in the past 60 days to $8.08.
WTS’ earnings surpassed the Zacks Consensus Estimate in each of the last four quarters, the average surprise being 11.8%. Shares of WTS have jumped 30.2% in the past year.
The Zacks Consensus Estimate for 2023 is pegged at a loss of 9 cents per share for NETGEAR, which remained unchanged in the past 30 days. NTGR’s earnings outpaced the Zacks Consensus Estimate in three of the last four quarters while missing once. The average surprise was 127.5%. Shares of NTGR were down 28.2% in the past year.
The Zacks Consensus Estimate for Blackbaud’s 2023 EPS has improved by 1% in the past 60 days to $3.86.
BLKB’s earnings surpassed the Zacks Consensus Estimate in each of the last four quarters, the average surprise being 10.6%. Shares of BLKB have gained 35.5% in the past year.
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SAP's Q4 Earnings and Revenues Rise Y/Y on Cloud Strength
SAP SE (SAP - Free Report) delivered fourth-quarter 2023 non-IFRS earnings per share (EPS) of €1.41, which increased 44% from the year-ago quarter.
Driven by strength in the cloud business, SAP reported total revenues on a non-IFRS basis of €8.468 billion, which increased 5% year over year (up 9% at constant currency or cc).
SAP announced that it will be focusing on vital strategic growth areas, especially Business AI, and position the company for future growth. It will be taking up a restructuring program in 2024, whereby it plans to eliminate 8,000 positions across its operations. The majority of the affected positions is expected to be covered by voluntary leave programs and internal re-skilling measures, added management. It anticipates to exit 2024 at a headcount similar to current levels.
SAP expects to incur around €2 billion in restructuring expenses. The majority of these expenses are expected to be recognized in the first half of 2024, thereby affecting IFRS operating profit. The restructuring program is not expected to provide major cost benefits in 2024, per management.
SAP SE Price, Consensus and EPS Surprise
SAP SE price-consensus-eps-surprise-chart | SAP SE Quote
Also, the company revised its guidance for some metrics for 2025. Non-IFRS cloud gross profit is expected to be €16.2 billion (including share-based compensation expenses of €0.1 billion) compared with an earlier projection of €16.3 billion (excluding share-based compensation expenses).
Non-IFRS operating profit is now anticipated to be €10.0 billion (which includes share-based compensation expenses of €2 billion) compared with €11.5 billion (excluding share-based compensation expenses) projected earlier.
Free cash flow is now forecast to be €8.0 billion compared with an earlier projection of €7.5 billion.
The company continues to expect cloud revenue of more than €21.5 billion and total revenue of more than €37.5 billion for 2025.
Following the announcement, shares of SAP are up 6% in the pre-market trading on Jan 24. In the past year, shares have gained 40.7% compared with the sub-industry’s growth of 57.2%.
Image Source: Zacks Investment Research
Cloud Results
Current cloud backlog — a key indicator of go-to-market success in cloud business — increased 25% (up 27% at cc) to €13.75 billion.
On a non-IFRS basis, the Cloud and software business (87.2% of total revenues) registered revenues of €7.386 billion, up 6% year over year (up 10% at cc).
Cloud revenues were €3.699 billion, up 20% year over year on a non-IFRS basis (up 25% at cc). SAP’s cloud business remained strong across Asia-Pacific, Europe, the Middle East and Africa, and the Americas region. It remained strong in Japan and Saudi Arabia, Brazil, Germany, France, India and South Korea.
Software licenses and support revenues totaled €3.687 billion, which decreased 5% (down 2% at cc) year over year. Non-IFRS software license revenues of €841 million declined 7% (down 6% at cc) year over year.
On a non-IFRS basis, cloud revenues related to Software as a Service increased 24% at cc to €2.894 billion. Cloud revenues related to Platform as a Service rose 46% at cc to €620 million. Cloud revenues related to Infrastructure as a Service declined 7% at cc to €184 million.
Services business (12.8% of total revenues) delivered revenues of €1.08 billion, which remained unchanged from the year-ago quarter (up 4% at cc).
The company previously had two reportable segments — Applications, Technology & Services (AT&S) and Qualtrics. However, in June 2023, it completed the sale of its entire stake in Qualtrics as part of the acquisition of Qualtrics by funds associated with Silver Lake and Canada Pension Plan Investment Board.
SAP now has AT&S as its only reportable segment and the Qualtrics segment is treated as discontinued operations. AT&S’ revenues were up 5% year over year (up 9% at cc) to €8.17 billion owing to solid cloud revenue growth on the back of rising demand for SAP S/4HANA and its Business Technology Platform.
Expanding Clientele Bodes Well
Rise with SAP solution was adopted by clients including Amer Sports, Coles Group, Covestro, Daikin Industries, Daimler Truck, Deutsche Telekom, Hilti, IBM, KONE, Kyndryl, Landis+Gyr, Marathon Petroleum, Marks and Spencer, Messe Frankfurt, Munich Airport, NEC Corporation, NVIDIA, Nestlé, OXG Glasfaser, SLB, Vodafone Group and Wärtsilä Corporation.
More companies have begun deploying S/4HANA solutions partly or entirely in the cloud. SAP S/4HANA cloud revenues increased 55% (up 61% at cc) year over year to €1.03 billion. SAP S/4HANA’s current cloud backlog was up 58% (up 61% at cc) year over year.
In the reported quarter, AES Indiana, Allianz, ARAG, DAK-Gesundheit, Tropicana Brands Group and Zurich Insurance Company went live on SAP S/4HANA Cloud.
SAP’s clientele continues to expand with additions of Ahold Delhaize, Airservices Australia, Beiersdorf, Bosideng, Delivery Hero, Douglas, DZ BANK, Ericsson, MATSUMOTO PRECISION, Mercedes-Benz Group, NEOM, Robert Bosch, TechnipFMC, TE Connectivity, Volkswagen and Wipro. These brands adopted SAP’s various solutions during the quarter under review.
GROW with SAP was adopted by Lowe Enterprises, Mangopay, Merida & Centurion Germany, Okuma Europe, Serrala Group and Solidia Technologies.
On Dec 13, 2023, SAP expanded its collaboration with IBM on AI and Quantum. IBM also deployed RISE with SAP solutions across the enterprise, thereby expanding its global reach. It is continuing the use of the cloud through the use of SAP Fieldglass and SAP Learning Hub.
Margin Details
Non-IFRS gross margin of 74.8% decreased 30 basis points (bps) from the year-ago quarter’s figure.
SAP reported non-IFRS operating expenses of €5.957 billion, up 8% from a year ago (up 12% at cc).
Non-IFRS operating profit of €2.51 billion decreased 2% on a year-over-year basis (up 2% at cc). Operating profit was affected by the accelerated amortization of capitalized sales commissions pertaining to the on-premise business and higher bonus accruals.
Non-IFRS operating margin of 29.6% contracted 210 bps on a year-over-year basis. At cc, the figure came in at 29.7% and contracted 210 bps from the year-ago figure.
Balance Sheet & Cash Flow
As of Dec 31, 2023, SAP had cash and cash equivalents of €8.124 billion compared with €9.378 billion as of Sep 30, 2023.
For the year ended on Dec 31, 2023, the company generated operating cash of €6.193 billion compared with €5.675 billion in the prior year.
For 2023, free cash flow was €5.083 billion compared with €4.388 billion in 2022.
2024 Outlook
Management anticipates cloud revenues in the range of €17-€17.3 billion, suggesting an increase of 24-27% at cc.
Cloud and software revenues are now expected to be between €29 billion and €29.5 billion, implying 8-10% growth at cc.
Management projects non-IFRS operating profit in the range of €7.6-€7.9 billion, indicating a rise of 17-21% at cc.
Free cash flow is estimated to be €3.5 billion.
Zacks Rank
SAP currently carries a Zacks Rank #3 (Hold).
Stocks to Consider
Some better-ranked stocks worth consideration in the broader technology space are Watts Water Technologies (WTS - Free Report) , NETGEAR (NTGR - Free Report) and Blackbaud (BLKB - Free Report) . While NETGEAR and Blackbaud currently sport a Zacks Rank #1 (Strong Buy) each, Watts Water carries a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Watts Water Technologies’ 2023 EPS has improved by 1% in the past 60 days to $8.08.
WTS’ earnings surpassed the Zacks Consensus Estimate in each of the last four quarters, the average surprise being 11.8%. Shares of WTS have jumped 30.2% in the past year.
The Zacks Consensus Estimate for 2023 is pegged at a loss of 9 cents per share for NETGEAR, which remained unchanged in the past 30 days. NTGR’s earnings outpaced the Zacks Consensus Estimate in three of the last four quarters while missing once. The average surprise was 127.5%. Shares of NTGR were down 28.2% in the past year.
The Zacks Consensus Estimate for Blackbaud’s 2023 EPS has improved by 1% in the past 60 days to $3.86.
BLKB’s earnings surpassed the Zacks Consensus Estimate in each of the last four quarters, the average surprise being 10.6%. Shares of BLKB have gained 35.5% in the past year.