SAP cloud sales rose 38% to €3.28 billion in the third quarter, sparking an increase in overall revenue, though rising expenses dragged down profit. Credit: Peter Sayer/IDG Fueled by strong sales of cloud-based software that more than offset a decline in revenue from on-premises applications, SAP revenue jumped in the third quarter compared to the year-earlier period. Total revenue for the quarter ending Sept. 30 was €7.84 billion (US$7.72 billion), up 15%, according to company’s quarterly financial report, released Tuesday. SAP’s cloud and software revenue for the quarter rose 14% to €6.71 billion. Cloud revenue alone rose 38% to €3.28 billion. Revenue for the company’s S/4HANA cloud-based ERP offering, in particular, nearly doubled, rising 98% to €546 million. SAP results benefited from the strong US dollar, as dollar sales were converted to euros—for example, overall revenue growth in constant currency terms, which exclude the effect of currency fluctuations, was 5% rather than the nominal 15%. Nevertheless, the uptick in cloud sales is good news for SAP, since the company has been pushing customers to migrate from its legacy Business Suite 7, which is usually run on-premises, ever since S/4HANA was launched in 2015. Selling cloud software and services is good business for SAP and other software providers, since, among other things, cloud subscriptions provide a more predictable revenue stream than renewals of licenses for on-premises applications. Despite the jump in revenue, SAP posted a 1% dip in operating profit to €1.239 billion due largely to rising costs in areas including research and development, sales and marketing, and the need for more outlay on the maintenance of the company’s cloud services. Licenses for on-premises software declined 38% to €406 million, reflecting customer migration to cloud-based software. Unsurprisingly, the Germany-based software giant was most eager to talk about its success in the cloud. “The trust in SAP is reflected in our accelerating cloud momentum,” said CEO Christian Klein in the company’s earnings press release. “It’s clear that our transformation has reached an important inflection point, paving the way for continued growth in the future.” Despite the negative news on operating profit, investors greeted SAP’s results warmly, with the company’s share price rising $5.69—or 6.25%—to $96.70 in mid-afternoon trading in the US. Like much of the tech sector, SAP is facing headwinds caused by the ripple effects of Russia’s invasion of Ukraine, as well as a bearish economic climate. Hence, the positive news on the company’s cloud business appears to have been enough to inspire confidence in SAP’s overall outlook. SAP has made major headway on its transition from a license- and maintenance-based business to a usage-based, cloud-first company, due in part to a long string of acquisitions in the past decade in addition to the introduction of S/4HANA, which brings the company’s ERP platform to the public cloud of the customer’s choice. However, the company has a long way to go. Just 12% of current and intended SAP ERP users in the US and Europe responding to a recent survey by digital transformation services provider LeanIX have completed the transition to S/4HANA. Another 12% said they have postponed the start of their move to S/4HANA, and 74% of enterprises that were polled are just at the evaluation and planning phase of their ERP migration. Related content brandpost Sponsored by DataStax Disrupting the enterprise: How AI is redefining people, process, and productivity AI solves for both thought and time scarcity – and opens up a whole new world of possibilities. By Chet Kapoor, CEO, DataStax, and Prasad Setty, DataStax advisor and Stanford Graduate School of Business lecturer May 09, 2024 8 mins Machine Learning Artificial Intelligence news SAP, IBM Consulting partner to offer genAI-based services The partnership will see both companies offer generative AI-based services to enterprises via RISE with SAP offering. By Anirban Ghoshal May 09, 2024 3 mins Generative AI IBM SAP feature Essential skills and traits of chief AI officers CAIOs require a multidimensional skill set to drive innovation, establish and lead an AI-ready culture, and create tangible organizational results leveraging a complex and rapidly evolving technology. By David Weldon May 09, 2024 9 mins Artificial Intelligence IT Leadership case study How being cloud smart fosters growth at Saab Fuelled by global turbulence and increasing defense budgets, Swedish defense group Saab is meeting high demand by integrating efforts to become more software-driven, and central to managing it all is CIO Annette Eriksson. By Karin Lindström May 09, 2024 5 mins CIO Aerospace and Defense Industry Cloud Architecture PODCASTS VIDEOS RESOURCES EVENTS SUBSCRIBE TO OUR NEWSLETTER From our editors straight to your inbox Get started by entering your email address below. Please enter a valid email address Subscribe