(Bloomberg) — SAP SE’s cloud revenue grew 25% in the third quarter as Europe’s largest software company scrambled to lure customers away from locally managed systems with the promise of artificial intelligence tools and analytics.
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Cloud revenue rose from a year earlier to €4.35 billion ($4.7 billion), the Walldorf, Germany-based company said in a statement on Monday, roughly in line with analyst estimates. The company’s cloud backlog, which reflects revenues expected to be booked over the next twelve months, rose 25% to €15.4 billion.
GSP has thrived even as the German economy stagnates, with gross domestic product expected to shrink for the second year in a row in 2024. The software company’s customers are shifting to the cloud, where the company has expanded its offering of AI services for business users. Cloud operations promise higher average spend per customer than SAP’s existing on-premise software.
SAP has raised its 2024 outlook for a number of financial metrics, including free cash flow, which is now estimated at €3.5 billion to €4 billion, from around €3.5 billion previously. Cloud revenue guidance for 2024 remains €17 billion to €17.3 billion at constant exchange rates, up 24% to 27%.
Chief Executive Officer Christian Klein is trying to accelerate the shift to the cloud, partly with the help of a new AI-focused strategy announced early this year. About 30% of cloud deals in the third quarter included business AI use cases, Klein said while speaking to reporters after the results.
About 10,000 jobs will be affected as part of a restructuring linked to the new strategy, which has cost €2.8 billion in the first nine months.
SAP shares are up 51% so far this year. The company’s U.S. depository receipts rose 3.3% after markets closed in New York on Monday.
The growth comes despite the high turnover within the board of directors. Chief Marketing Officer Julia White and Chief Revenue Officer Scott Russell left the company in August. Chief Technology Officer Jürgen Müller left last month and is facing a criminal investigation by German prosecutors for inappropriate behavior.
SAP is also facing a civil investigation in the US, its largest market. The Department of Justice is investigating whether the company illegally conspired with product reseller Carahsoft Technology Corp. to fix prices with nearly a hundred government agencies, Bloomberg News reported this month.
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