SAP SE Q1 FY2025 earnings call

Key Points

• Q1 was a strong start with SAP showing resilience despite macroeconomic challenges. Current cloud backlog grew rapidly, cloud revenue increased significantly, and operating profit and cloud gross margin improved.
• Market momentum was highlighted by IDC and Gartner reports, with SAP recognized as a leader in enterprise applications.
• The pipeline for 2025 remains solid. Product innovations like SAP Business Data Cloud were discussed, which unifies and governs data to support AI. Commercial updates to the RISE offering and flexible cloud addendum were mentioned.
• Internal AI efficiencies using Joule tools improved productivity, and there were numerous customer wins across various sectors and industries.

In Q1, SAP's current cloud backlog expanded 29% to €18.2 billion. Quarterly cloud revenue neared the €5 billion mark, up 26%. The share of more predictable revenue was 86%. Cloud revenue's ERP suite accounted for 85% of first quarter cloud revenue. Total revenue reached €9 billion, up 11%. Non-IFRS cloud gross margin improved by 2.6 percentage points to 75%, and non-IFRS operating profit surged 58% to €2.5 billion.

SAP left its 2025 outlook across all metrics unchanged. While the pipeline is healthy, conversion rates could be negatively affected by trade disputes. The company remains focused on disciplined execution and cost management to safeguard bottom-line and free cash flow.

• Uncertainty in the global economy and ongoing trade disputes pose risks. - Tariffs and geopolitical events could impact transactional cloud revenues. - Escalation of trade wars could lead to a severe global recession, though the outlook doesn't assume such an adverse scenario.

Q: On current trading and cloud revenue guidance, how is confidence maintained?

A: Christian Klein notes strong customer conversations around gaining resilience in supply chain and using tools like Business Data Cloud, with pipeline remaining intact. Dominik Asam adds that conversion rates haven't deteriorated yet but trade disputes are closely monitored.

Q: How much of the cloud revenue deceleration was due to deal timing?

A: Dominik Asam explains that late Q4 cloud deals had later provisioning, leading to a step-up in Q2, and transactional revenues were weak due to macro factors but comps in Q2 are easier.

Q: How does SAP Business Data Cloud differ from Datasphere?

A: Christian Klein states Business Data Cloud unifies and governs all data, including non-SAP, with a strong semantical layer, unlike Datasphere which focused on technical integration. It supports AI better and has strong pipeline momentum.

Q: On large deals and FX, what's the perspective?

A: Christian Klein mentions large deals are secured with quantified value and C-level involvement. Dominik Asam explains FX forecasting at constant currencies with hedges protecting free cash flow, and sensitivities to exchange rate changes are noted.