SAP, the German enterprise software giant, experienced a decline in its shares after reporting its financial results for the June quarter, which fell shy of Wall Street estimates.
An Optimistic Outlook Amidst Challenging Numbers
CEO Christian Klein remained optimistic despite the disappointing figures. In a statement, he highlighted the potential for growth through the transformative power of AI. However, the results did not meet consensus estimates.
Q2 Revenue and Profit Figures
SAP posted revenue of €7.5 billion ($8.35 billion) for the second quarter, representing a 5% increase, or an 8% increase adjusted for currency. This fell just short of the Wall Street consensus forecast of €7.6 billion tracked by FactSet.
The profit on an adjusted basis stood at €1.07 per share, below the consensus figure of €1.17 per share. Under standard accounting practices, the company earned €0.62 per share.
Notable Growth and Cloud Transition
Operating profit, on an adjusted basis, saw a significant increase of 23%, or 28% adjusted for currency, amounting to €2.1 billion.
SAP’s efforts to encourage its customers to transition to cloud-based software solutions have shown promise. Cloud revenue for the quarter reached €3.3 billion, reflecting a 19% increase, or 22% growth in constant currency.
Adjusted Forecasts for the Full Year
While SAP slightly adjusted its cloud revenue forecast for the full year, reducing it to a range of €14 billion to €14.2 billion, they anticipate an adjusted operating profit at constant currency ranging between €8.65 billion and €8.95 billion, slightly increasing the previous range of €8.6 billion to €8.9 billion.
SAP remains confident about the future and expects significant opportunities ahead, leveraging AI’s transformative capabilities.
SAP CFO Dominik Asam Comments on Company Performance
In a recent interview with SAP CFO Dominik Asam, he addressed some challenges the company faced in the quarter. Specifically, he mentioned that certain transactional businesses, such as Concur and Fieldglass, experienced headwinds. Concur is an employee expense management tool, while Fieldglass is used for contract worker management. Additionally, Asam noted that cautious customers caused delays in certain projects, pushing them from the second quarter to the third.
CEO Klein Highlights Promise of Generative AI
During a call with reporters, CEO Klein emphasized the potential of SAP’s venture into generative AI software. He expressed his belief that AI will significantly expand the company’s total addressable market, projecting it to reach $1 trillion by 2028. This forecast surpasses their previous estimate of $500 billion.
As SAP explores different models for introducing new AI tools to the market, Asam acknowledged the significant value of AI and suggested that appropriate pricing will align with its worth. He emphasized that AI cannot be obtained for free.
SAP’s Investments in Generative AI Companies
This week, SAP announced strategic investments in three companies specializing in large language models. These companies include Anthropic, Cohere, and Aleph Alpha. According to SAP, these investments align with their open ecosystem approach towards AI and their goal of embedding AI technology across their portfolio.
SAP joins a growing list of corporate investors supporting generative AI businesses. Industry giants Alphabet, Salesforce, and Zoom Video have already invested in Anthropic. Similarly, Cohere has secured investments from SAP’s rivals Salesforce and Oracle, as well as chipmaker Nvidia. Furthermore, Aleph Alpha recently partnered with Hewlett Packard Enterprise (HPE) to develop large language models.
Following these announcements, SAP’s U.S.-listed shares experienced a decline of 6.3%, reaching $133.93 on Thursday.