SAP SE Q2 FY2025 earnings call

Key Messages

• Q2 was a strong quarter with solid financials, cloud revenue growth, and a robust pipeline.
• Product innovation with Business AI is a focus, with over half of cloud order entry volume in Q2 including AI use cases.
• Customer highlights include partnerships like Alibaba, GSK, Balmain, Replay, and various LOB solutions adoption.
• Regional performance: Cloud revenue strong in APJ and EMEA, solid in Americas.
• Internal transformation using Business AI to boost productivity, with initiatives like Joule and data products expansion.

In Q2, cloud revenue rose 28%, with the Cloud ERP Suite driving growth at 34% in Q2, accounting for 86% of total cloud revenue. Current cloud backlog reached EUR 18.1 billion, up 28%. Total revenue was EUR 9 billion, up 12%. Software licenses revenue decreased by 13%. Non-IFRS cloud gross margin expanded by 1.8 percentage points to 75.2% in Q2.

Guidance

• 2025 outlook remains unchanged.
• Focus on decoupling expense growth from accelerated revenue growth.
• Leveraging AI for productivity and managing workforce adjustments to optimize costs.
• Full year guidance is solidly on track, with confidence in achieving operating leverage ratios.

Risks

• Uncertainty in global markets, including elongated approval workflows in industries like U.S. public sector and manufacturing affected by tariffs.
• Trade policy uncertainties impacting sales cycles and customer decision-making.

Q: Adam Wood asked about operating margin and EBIT growth for the second half.

A: Dominik Asam responded discussing factors like stock-based compensation impact, workforce adjustments, and confidence in full year guidance.

Q: Mark Moerdler inquired about margin sustainability.

A: Dominik Asam talked about operating leverage ratios, workforce optimization, and the gradient of margin improvement going forward.

Q: Jackson Ader asked about Alibaba partnership details.

A: Christian Klein discussed China market presence, partnership goals, and the Chinese total addressable market for SAP.

Q: Michael Briest asked about contract liabilities and transformation credits.

A: Dominik Asam and Christian Klein explained transformation credits, their use in large customer transformations, and impact on cash flow and revenues.

Q: Frederic Boulan asked about demand impact on CCB.

A: Christian Klein and Dominik Asam discussed pipeline coverage, uncertainty in some sectors, and the impact of WalkMe on CCB.

Q: Charlie Brennan asked about Alibaba partnership details and Chinese footprint.

A: Christian Klein elaborated on China market angles, partnership mechanics, and the Chinese total addressable market.

Q: Mohammed Moawalla asked about macro impacts and CCB growth.

A: Christian Klein and Dominik Asam spoke about elongated deal cycles, pipeline, and deal management in uncertain markets.

Q: Ben Castillo asked about OpEx trajectory and headcount.

A: Dominik Asam discussed stock-based compensation impact, workforce hiring and adjustment, and plans for mid-term planning.

Q: Johannes Schaller asked about Made For Germany initiatives.

A: Christian Klein talked about SAP's contributions, investment areas in Germany, and pushing for reduced regulation and sovereignty.

Q: Michael Turrin asked about Sapphire event impacts and U.S. public sector.

A: Christian Klein discussed Sapphire's pipeline generation and efforts to accelerate sales cycles in the U.S. public sector.