SAP Q1 2023 quarterly earnings report

SAP is a market leader in enterprise application software, with a turnover in the billions. Each quarter it publishes its earnings, giving investors and anyone interested in using its software a chance to see how it’s performing. Here, we take a look at the SAP Q1 2023 quarterly earnings report and summarise the main highlights. 

How did SAP perform in Q1 2023?

SAP announced growth in cloud revenue, as well as a significant increase in IFRS operating profit, during its latest quarterly statement.

Year-on-year, cloud revenue increased by 24% to €3.18 billion. Using constant currencies, which removes the impact of fluctuating global exchange rates, it was up 22%. Notably, its S/4HANA cloud revenue (S/4HANA is its enterprise resource planning software) jumped up by 77% to €716 million (75% at constant currencies).

Meanwhile, current cloud backlog^[1] grew by 25% to €11.15 billion. This is a measure of future revenue from subscription contracts, as detailed at the foot of this article.

SAP also highlighted that IFRS (International Financial Reporting Standards) cloud gross profit was up by 28%. Non-IFRS cloud gross profit grew by the same percentage (27% at constant currencies), in turn fuelling double-digit non-IFRS operating profit growth. 

Finally, SAP announced that the outlook for 2023 had been updated to reflect the expected Qualtrics divestiture. See more details later on in this article.

Ten highlights from SAP Q1 2023 earnings report

SAP Customer and Product Updates

1. SAP announced that a number of new customers chose “RISE with SAP” to drive their end-to-end business transformations. Customers included:
   1. BMW Group
   2. DOLCE & GABBANA,
   3. GAMA,
   4. GlasfaserPlus,
   5. The Government of Manitoba,
   6. Henkel,
   7. KANSAI PAINT CO,
   8. Lingong Heavy Machinery,
   9. MLS,
   10. NEC Networks & System Integration Corporation,
   11. Pastificio Rana,
   12. Sempra Infrastructure,
   13. Sodexo BRS,
   14. Sri Intellectual,
   15. Thales Defense & Security Inc,
   16. VEM Conveniência,
   17. Zagis
       
       
2. The company announced that several customers went live on SAP S/4HANA Cloud. Those included:
   1. Advanced Micro Devices,
   2. Air India,
   3. Aurobay,
   4. FLYING WHALES,
   5. Hengan Group,
   6. JFE Steel Corporation,
   7. Ourofino Agrociência,
   8. REPETCO Innovations,
   9. Shinsegae International
      
      
3. Key customer wins across SAP’s solution portfolio included:
   1. A.S. Watson
   2. BayWa
   3. Berlin Hyp
   4. Brisanet
   5. Dr. Martens (Airwair International Limited),
   6. Envision Energy,
   7. Grupo Estrella Blanca,
   8. Grupo Minero Bacis,
   9. Haffner Energy,
   10. HCLTech,
   11. Hitachi High-Tech Corporation,
   12. N+,
   13. NTT DATA Business Solutions,
   14. Lee Kum Kee Sauce Group,
   15. SMA Solar Technology,
   16. Soleum,
   17. University Hospital Bonn,
   18. Whirlpool Corporation.
       
       
4. On February 1, 2023, SAP and Red Hat, Inc., the world’s leading provider of open-source solutions, announced an expanded partnership.
   
   
5. SAP announced GROW with SAP, a new offering to help midsize customers adopt cloud ERP that enables speed, predictability and continuous innovation.

SAP Regional Performance

1. Cloud revenue performance was robust across all regions.
   
   
2. Brazil, Germany and India had outstanding cloud revenue growth while China, Japan, Mexico, the Netherlands, Switzerland, and the United States performed particularly strong.

Dividends and Governance

1. SAP proposed a dividend of €2.05 per share for fiscal year 2022 representing a year-over-year increase of 5% compared to the regular dividend paid for fiscal year 2021.
   
   
2. SAP closed a new sustainability-linked revolving credit facility with a volume of €3 billion and a tenor of five years plus two one-year extension options.
   
   
3. The SAP Supervisory Board extended the contracts of Executive Board Members Julia White, Chief Marketing & Solutions Officer, and Scott Russell, who leads SAP’s Customer Success organization, for three years until 2027.

SAP’s outlook for 2023

The company lowered its outlook for the year due to the divestment of its Qualtrics unit. 

Despite that divestiture, SAP still expects cloud revenue growth of 23% to 26% at constant currencies; cloud and software revenue growth of 6% to 8% at constant currencies; non-IFRS operating profit growth of 8% to 11% at constant currencies; a share of more predictable revenue of approximately 82%; and free cash flow of approximately €4.9 billion.

Analyst reactions to SAP Q1 2023 quarterly earnings report

On a per-share basis, results did not meet expectations, at least according to six analysts surveyed by Zacks Investment Research. Yet revenue of $7.98 billion was above what five other analysts surveyed were expecting.

Overall, Q1 2023 financial results were received positively by the SAP Analyst community and shares were up 3.7% in the pre-market trading on April 21. Investopedia highlighted that SAP’s growth was in contrast to the slowdown experienced by some of the bigger cloud technology companies.

Definition of SAP Current Cloud Backlog

[1] Current Cloud Backlog is SAP’s metric representing cloud revenue that is contractually committed and that SAP expects to recognise over the upcoming 12 months. For more on how this metric is accounted for, read SAP’s announcement from 2020.