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SAP's Q1 Earnings and Revenues Rise Y/Y on Cloud Strength
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SAP SE (SAP - Free Report) delivered first-quarter 2024 non-IFRS earnings per share (EPS) of €0.81, which increased 8% year over year.
Driven by strength in the cloud business, SAP reported total revenues on a non-IFRS basis of €8.041 billion, which increased 8% year over year (up 9% at constant currency or cc). The company expects Business AI, cross-selling across cloud portfolio and new customers wins, especially in the midmarket, to drive top-line expansion.
Following the announcement, shares of SAP are up 3.9% in the pre-market trading on Apr 23. In the past year, shares have gained 34.4% compared with sub-industry’s growth of 36.2%.
Image Source: Zacks Investment Research
Cloud Results
Current cloud backlog — a key indicator of go-to-market success in cloud business — increased 27% (up 28% at cc) to €14.18 billion.
On a non-IFRS basis, the Cloud and software segment (86.6% of total revenues) registered revenues of €6.96 billion, up 9% year over year (up 11% at cc).
Cloud revenues were €3.928 billion, up 24% year over year on a non-IFRS basis (up 25% at cc). SAP’s cloud particularly strong in Brazil, Canada, Germany, Italy, the United Arab Emirates, India, South Korea, United States of America, Japan and Spain.
Cloud ERP Suite revenues of €3.167 billion were up 31% year over year on a non-IFRS basis (up 32% at cc).
Software licenses and support revenues totaled €3.031 billion, which decreased 5% (down 4% at cc) year over year. Software license revenues of €203 million declined 26% (down 25% at cc) year over year.
Services business (13.4% of total revenues) delivered revenues of €1.08 billion, which remained unchanged year over year (up 1% at cc).
On a non-IFRS basis, cloud revenues related to Software-as-a-Service and Platform-as-a-Service increased 28% at cc to €3.764 billion. Cloud revenues related to Infrastructure-as-a-Service declined 15% at cc to €164 million.
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 8% year over year (up 9% at cc) to €7.97 billion owing to solid cloud revenue growth on the back of rising demand for Cloud ERP Suite.
Expanding Clientele Bodes Well
Rise with SAP solution was adopted by clients including Brussels Regional Public Service, Ineos Europe, Lindt & Sprüngli, Clearway Energy Group, Curtiss-Wright, Fresenius, LyondellBasell, MAHLE International, Public Power Corporation, SKF Group, Sumitomo Heavy Industries, Sutherland, Velliv, ZF Friedrichshafen and Zoetis.
In the reported quarter, Foodstuffs South Island, Havells India, PureTech Scientific, Randoncorp, and Stuttgart Netze went live on SAP S/4HANA Cloud.
SAP’s clientele continues to expand with additions Cintas, FrieslandCampina, LEONI, Maersk, Rabobank, Schaeffler Group, Sky and Vaillant Group. These brands adopted SAP’s various solutions during the quarter under review.
GROW with SAP was adopted by Aleron Shared Resources, American Printing House for the Blind, Centrale del Latte di Roma, Churchill Downs Incorporated, Climeworks, Ironwood Pharmaceuticals, MaxiTRANS, SFC Energy and Unico.
SAP also has proposed a dividend of €2.20 per share for fiscal 2023, representing a hike of 7% from a year ago. The proposal is subject to shareholder approval at the upcoming AGM scheduled for May 15, 2024.
In May 2023, SAP had announced a repurchase program with an aggregate volume of up to €5 billion with expiry until Dec 31, 2025. As of Mar 31, 2024, SAP repurchased 10,024,841 shares at an average price of €137.62, resulting in payouts of €1.38 billion under the program.
Margin Details
Non-IFRS gross margin of 71.8% increased 50 basis points (bps) year over year.
Non-IFRS Cloud gross profit increased 27% year over year to €2.849 billion. Non-IFRS Cloud gross margin was 72.5%, expanding 170 bps year over year.
SAP reported non-IFRS operating expenses of €6.507 billion, up 6% year over year (up 7% at cc).
Non-IFRS operating profit of €1.533 billion grew 16% on a year-over-year basis (up 19% at cc).
Non-IFRS operating margin of 19.1% expanded 130 bps on a year-over-year basis. At cc, the figure came in at 19.4% and contracted 160 bps year over year.
In the fourth quarter of 2023, SAP had 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 incurred around €2.2 billion in restructuring expenses in the first quarter. As a result, SAP reported operating loss of €0.8 billion, compared with operating income of €0.8 billion in the prior year quarter.
Balance Sheet & Cash Flow
As of Mar 31, 2024, SAP had cash and cash equivalents of €9.295 billion compared with €8.124 billion as of Dec 31, 2023.
For the quarter under review, the company generated operating cash of €2.757 billion compared with €2.311 billion in the prior-year quarter.
For the first quarter, free cash flow was €2.492 billion compared with €1.955 billion in prior-year quarter.
Outlook Reiterated
Management anticipates cloud revenues in the range of €17-€17.3 billion, suggesting an increase of 24-27% at cc on a year over year basis.
Cloud and software revenues are now expected to be between €29 billion and €29.5 billion, implying 8-10% growth at cc on a year over year basis.
Management projects non-IFRS operating profit in the range of €7.6-€7.9 billion, indicating a rise of 17-21% at cc on a year over year basis.
Free cash flow is estimated to be €3.5 billion.
Also, the company reaffirmed its guidance for 2025. Non-IFRS cloud gross profit is expected to be €16.2 billion (including share-based compensation expenses of €0.1 billion).
Non-IFRS operating profit is anticipated to be €10.0 billion, (which includes share-based compensation expenses of €2 billion).
Free cash flow is now forecast to be €8.0 billion. The company continues to expect cloud revenues of more than €21.5 billion and total revenues of more than €37.5 billion for 2025.
Zacks Rank
SAP currently carries a Zacks Rank #5 (Strong Sell).
The Zacks Consensus Estimate for Badger Meter’s 2024 EPS is pegged at $3.89. The long-term earnings growth rate is 15.6%. BMI’s earnings beat the Zacks Consensus Estimate in each of the last four quarters, the average surprise being 12.7%. Shares of BMI have soared 34.9% in the past year.
The Zacks Consensus Estimate for BLKB’s 2024 EPS is pegged at $4.22. Blackbaud’s earnings beat the Zacks Consensus Estimate in each of the last four quarters, the average surprise being 8.7% Shares of BLKB have gained 17.4% in the past year
The Zacks Consensus Estimate for CDNS’ 2024 EPS has increased 1% in the past 60 days to $5.93. Cadence’s earnings beat the Zacks Consensus Estimate in each of the last four quarters, the average surprise being 3.5%. Shares of CDNS have gained 33.8% in the past year.
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SAP's Q1 Earnings and Revenues Rise Y/Y on Cloud Strength
SAP SE (SAP - Free Report) delivered first-quarter 2024 non-IFRS earnings per share (EPS) of €0.81, which increased 8% year over year.
Driven by strength in the cloud business, SAP reported total revenues on a non-IFRS basis of €8.041 billion, which increased 8% year over year (up 9% at constant currency or cc). The company expects Business AI, cross-selling across cloud portfolio and new customers wins, especially in the midmarket, to drive top-line expansion.
Following the announcement, shares of SAP are up 3.9% in the pre-market trading on Apr 23. In the past year, shares have gained 34.4% compared with sub-industry’s growth of 36.2%.
Image Source: Zacks Investment Research
Cloud Results
Current cloud backlog — a key indicator of go-to-market success in cloud business — increased 27% (up 28% at cc) to €14.18 billion.
On a non-IFRS basis, the Cloud and software segment (86.6% of total revenues) registered revenues of €6.96 billion, up 9% year over year (up 11% at cc).
Cloud revenues were €3.928 billion, up 24% year over year on a non-IFRS basis (up 25% at cc). SAP’s cloud particularly strong in Brazil, Canada, Germany, Italy, the United Arab Emirates, India, South Korea, United States of America, Japan and Spain.
Cloud ERP Suite revenues of €3.167 billion were up 31% year over year on a non-IFRS basis (up 32% at cc).
Software licenses and support revenues totaled €3.031 billion, which decreased 5% (down 4% at cc) year over year. Software license revenues of €203 million declined 26% (down 25% at cc) year over year.
Services business (13.4% of total revenues) delivered revenues of €1.08 billion, which remained unchanged year over year (up 1% at cc).
On a non-IFRS basis, cloud revenues related to Software-as-a-Service and Platform-as-a-Service increased 28% at cc to €3.764 billion. Cloud revenues related to Infrastructure-as-a-Service declined 15% at cc to €164 million.
SAP SE Price, Consensus and EPS Surprise
SAP SE price-consensus-eps-surprise-chart | SAP SE Quote
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 8% year over year (up 9% at cc) to €7.97 billion owing to solid cloud revenue growth on the back of rising demand for Cloud ERP Suite.
Expanding Clientele Bodes Well
Rise with SAP solution was adopted by clients including Brussels Regional Public Service, Ineos Europe, Lindt & Sprüngli, Clearway Energy Group, Curtiss-Wright, Fresenius, LyondellBasell, MAHLE International, Public Power Corporation, SKF Group, Sumitomo Heavy Industries, Sutherland, Velliv, ZF Friedrichshafen and Zoetis.
In the reported quarter, Foodstuffs South Island, Havells India, PureTech Scientific, Randoncorp, and Stuttgart Netze went live on SAP S/4HANA Cloud.
SAP’s clientele continues to expand with additions Cintas, FrieslandCampina, LEONI, Maersk, Rabobank, Schaeffler Group, Sky and Vaillant Group. These brands adopted SAP’s various solutions during the quarter under review.
GROW with SAP was adopted by Aleron Shared Resources, American Printing House for the Blind, Centrale del Latte di Roma, Churchill Downs Incorporated, Climeworks, Ironwood Pharmaceuticals, MaxiTRANS, SFC Energy and Unico.
SAP also has proposed a dividend of €2.20 per share for fiscal 2023, representing a hike of 7% from a year ago. The proposal is subject to shareholder approval at the upcoming AGM scheduled for May 15, 2024.
In May 2023, SAP had announced a repurchase program with an aggregate volume of up to €5 billion with expiry until Dec 31, 2025. As of Mar 31, 2024, SAP repurchased 10,024,841 shares at an average price of €137.62, resulting in payouts of €1.38 billion under the program.
Margin Details
Non-IFRS gross margin of 71.8% increased 50 basis points (bps) year over year.
Non-IFRS Cloud gross profit increased 27% year over year to €2.849 billion. Non-IFRS Cloud gross margin was 72.5%, expanding 170 bps year over year.
SAP reported non-IFRS operating expenses of €6.507 billion, up 6% year over year (up 7% at cc).
Non-IFRS operating profit of €1.533 billion grew 16% on a year-over-year basis (up 19% at cc).
Non-IFRS operating margin of 19.1% expanded 130 bps on a year-over-year basis. At cc, the figure came in at 19.4% and contracted 160 bps year over year.
In the fourth quarter of 2023, SAP had 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 incurred around €2.2 billion in restructuring expenses in the first quarter. As a result, SAP reported operating loss of €0.8 billion, compared with operating income of €0.8 billion in the prior year quarter.
Balance Sheet & Cash Flow
As of Mar 31, 2024, SAP had cash and cash equivalents of €9.295 billion compared with €8.124 billion as of Dec 31, 2023.
For the quarter under review, the company generated operating cash of €2.757 billion compared with €2.311 billion in the prior-year quarter.
For the first quarter, free cash flow was €2.492 billion compared with €1.955 billion in prior-year quarter.
Outlook Reiterated
Management anticipates cloud revenues in the range of €17-€17.3 billion, suggesting an increase of 24-27% at cc on a year over year basis.
Cloud and software revenues are now expected to be between €29 billion and €29.5 billion, implying 8-10% growth at cc on a year over year basis.
Management projects non-IFRS operating profit in the range of €7.6-€7.9 billion, indicating a rise of 17-21% at cc on a year over year basis.
Free cash flow is estimated to be €3.5 billion.
Also, the company reaffirmed its guidance for 2025. Non-IFRS cloud gross profit is expected to be €16.2 billion (including share-based compensation expenses of €0.1 billion).
Non-IFRS operating profit is anticipated to be €10.0 billion, (which includes share-based compensation expenses of €2 billion).
Free cash flow is now forecast to be €8.0 billion. The company continues to expect cloud revenues of more than €21.5 billion and total revenues of more than €37.5 billion for 2025.
Zacks Rank
SAP currently carries a Zacks Rank #5 (Strong Sell).
Stocks to Consider
Some better ranked stocks worth consideration in the broader technology space are Badger Meter (BMI - Free Report) , Blackbaud (BLKB - Free Report) and Cadence Design Systems (CDNS - Free Report) . While BMI sports a Zacks Rank #1 (Strong Buy), BLKB and CDNS carry a Zacks Rank of 2 (Buy) each, at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Badger Meter’s 2024 EPS is pegged at $3.89. The long-term earnings growth rate is 15.6%. BMI’s earnings beat the Zacks Consensus Estimate in each of the last four quarters, the average surprise being 12.7%. Shares of BMI have soared 34.9% in the past year.
The Zacks Consensus Estimate for BLKB’s 2024 EPS is pegged at $4.22. Blackbaud’s earnings beat the Zacks Consensus Estimate in each of the last four quarters, the average surprise being 8.7% Shares of BLKB have gained 17.4% in the past year
The Zacks Consensus Estimate for CDNS’ 2024 EPS has increased 1% in the past 60 days to $5.93. Cadence’s earnings beat the Zacks Consensus Estimate in each of the last four quarters, the average surprise being 3.5%. Shares of CDNS have gained 33.8% in the past year.