SAP SE

What they do

SAP provides enterprise software that helps organizations manage business operations, including enterprise resource planning (ERP), supply chain, human capital management, and customer experience. The company is shifting its customer base from on-premise licenses to cloud subscriptions, with a focus on its flagship S/4HANA platform and Business AI solutions.

Revenue drivers

• Cloud — Cloud revenue is the largest and fastest-growing segment, driven by subscriptions for S/4HANA Cloud, Business Technology Platform, and other SaaS offerings. It is the primary driver of SAP's total revenue growth.
• Software Licenses — Traditional on-premise software licenses are a mature revenue stream, declining as customers move to cloud. It still contributes a significant portion of total revenue but is being phased out in favor of cloud subscriptions.
• Support — Support revenue is a steady, recurring stream from customers who buy or have bought software licenses, providing maintenance and technical support. It remains a substantial part of the revenue mix.
• Services — Consulting, implementation, and training services support cloud adoption and digital transformation projects. This segment has lower margins but is important for customer success and cloud migration.

Recent performance

In fiscal 2025, SAP reported total revenue of €36.9 billion, up 11% year-over-year. Cloud revenue grew 28% to €18.5 billion, while software license revenue declined 20% to €2.9 billion. The company's IFRS operating profit increased 35% to €6.5 billion, with cloud gross margin expanding. The strong cloud performance was driven by robust demand for S/4HANA Cloud and Business AI.

Strategy

SAP is executing a cloud-first strategy, aiming to move all customers to its cloud ERP platform S/4HANA by 2027. The company is investing heavily in Business AI, embedding AI capabilities across its portfolio to drive innovation and efficiency. It also plans to divest non-core assets, such as its stake in Qualtrics, to focus on core ERP and AI growth areas.

Risks

• Cloud Transition Execution — Failure to successfully migrate customers from on-premise to cloud could result in revenue cannibalization and customer churn, impacting financial performance.
• Competitive Pressure — Intense competition from other ERP and cloud providers (e.g., Oracle, Microsoft) could pressure pricing and market share in core segments.
• Macroeconomic Downturn — A global economic slowdown could delay or reduce enterprise IT spending, affecting both cloud subscriptions and services revenue.
• Currency Fluctuations — SAP operates globally, deriving significant revenue outside the Eurozone; adverse currency movements could negatively impact reported revenue and profitability.

Outlook

Management expects continued double-digit growth in cloud revenue and an increase in cloud gross margin as the transition matures. They project non-IFRS operating profit to grow at a strong pace, driven by cloud scalability and AI-driven cost efficiencies. The company's 2027 targets remain unchanged, including a significant reduction in total workforce and a focus on AI-driven business transformation.