SAP, the German enterprise software giant, experienced a drop in shares on Thursday following the release of their financial results for the June quarter. Despite CEO Christian Klein’s optimistic outlook and mention of significant opportunities with AI, the numbers fell short of Wall Street estimates.
For the second quarter ending in June, SAP reported revenue of €7.5 billion, a 5% increase (8% adjusted for currency). However, this figure fell below the Wall Street consensus forecast of €7.6 billion as tracked by FactSet. Similarly, the adjusted profit per share was €1.07, lower than the estimated €1.17 per share. Under standard accounting practices, the company earned €0.62 per share.
On a more positive note, operating profit for the quarter stood at €2.1 billion, showing a significant increase of 23% (28% adjusted for currency). SAP also reported a cloud backlog of €11.5 billion, representing a 21% growth (25% adjusted for currency).
As SAP continues to encourage its customers to migrate to cloud versions of their software, the company saw a rise in cloud revenue to €3.3 billion—an impressive 19% increase (22% in constant currency).
Overall, while CEO Christian Klein remains optimistic about the future and the potential offered by AI, SAP will need to address the gap between their performance and Wall Street expectations in order to regain investor confidence.
SAP Adjusts Cloud Revenue Forecast, Ups Profit Outlook
SAP has revised its cloud revenue forecast for the full year, now estimating it to range from €14 billion to €14.2 billion. The new figures are slightly lower than the previous range of €14 billion to €14.4 billion. However, SAP has increased its adjusted operating profit at constant currency forecast to €8.65 billion to €8.95 billion, up from the earlier projection of €8.6 billion to €8.9 billion.
Focus on Generative AI Software
During a call with reporters, CEO Klein emphasized the potential of SAP’s venture into generative AI software. He highlighted that AI has the capability to expand the company’s total addressable market to $1 trillion by 2028, a significant increase from the previous forecast of $500 billion.
Investments in Language Models
Earlier this week, SAP disclosed its investments in three companies specializing in large language models: Anthropic, Cohere, and Aleph Alpha. These strategic investments align with SAP’s commitment to an open ecosystem approach for AI, where they leverage cutting-edge technology to integrate AI across the SAP portfolio.
A Growing Trend of Corporate Investors
SAP is set to join a growing roster of corporate investors that have shown interest in generative AI businesses. Anthropic has attracted investments from Alphabet, Salesforce, and Zoom Video. Cohere counts SAP’s rivals Salesforce and Oracle, as well as chipmaker Nvidia, as its investors. Meanwhile, Aleph Alpha has recently partnered with Hewlett Packard Enterprise (HPE) to develop large language models.
Share Price Decline
Following the announcement, SAP’s shares listed on the US market suffered a 4.3% drop, closing at $136.92.