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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call highlights strong cloud revenue growth, AI adoption, and a robust pipeline for H2 2025. Management expressed confidence in Q4 performance, with a focus on execution and cost optimization. Despite some market uncertainties, SAP's strategic partnerships and focus on data quality enhance its competitive position. The Q&A section revealed confidence in revenue acceleration, with strong free cash flow guidance. Overall, these factors contribute to a positive outlook for SAP's stock price in the short term.
Cloud Revenue Cloud revenue rose 27% year-over-year in Q3 2025. This marks the fifth consecutive quarter of over 25% growth, supported by strong adoption of SAP's cloud solutions and a solid cloud gross margin of about 75%.
Total Revenue Total revenue grew by 11% year-over-year in Q3 2025. This growth reflects strong performance across SAP's portfolio, including cloud and software solutions.
Current Cloud Backlog Current cloud backlog increased by 27% year-over-year in Q3 2025, reaching over EUR 18.8 billion. This growth was driven by strong market share gains and the inclusion of the WalkMe acquisition in the base.
Free Cash Flow Free cash flow increased by 5% year-over-year in Q3 2025, reaching EUR 1.3 billion. The increase was mainly due to higher profitability and lower restructuring payments, partially offset by higher tax payments.
Operating Profit Operating profit increased by 19% year-over-year in Q3 2025, reaching EUR 2.6 billion (non-IFRS). This growth occurred despite a negative impact of approximately EUR 200 million from tax litigation provisions and workforce transformation expenses.
Software Licenses Revenue Software licenses revenue decreased by 42% year-over-year in Q3 2025, reflecting the ongoing shift from on-premise solutions to cloud-based offerings.
Cloud ERP Suite Growth The cloud ERP suite achieved 31% year-over-year growth in Q3 2025, marking its 15th consecutive quarter of growth exceeding 30%. This growth highlights strong customer migration to the cloud and market share gains.
Cloud Gross Margin Cloud gross margin expanded by 1.1 percentage points year-over-year in Q3 2025, reaching 75.1%. This improvement was driven by operational efficiencies and strong cloud revenue growth.
Operating Cash Flow Operating cash flow increased by 7% year-over-year in Q3 2025, reaching EUR 1.5 billion. This growth was attributed to higher profitability and lower restructuring payments, partially offset by higher tax payments.
Cloud Revenue Growth: Cloud revenue rose 27% in Q3, marking the fifth consecutive quarter of over 25% growth. Cloud gross margin was solid at 75%.
AI Integration: SAP introduced AI assistants for supply chain management and other functions, increasing productivity by up to 40%. AI adoption is driving significant operational improvements for customers like Johnson Controls and Bosch.
New Software and Cloud Offering: SAP launched a new offering for highly regulated customers and governments, providing access to the entire cloud portfolio in customer data centers at competitive costs.
Market Share Gains: SAP grew 10 percentage points faster than the market in 2024, with strong adoption of Business Data Cloud and AI solutions.
U.S. Public Sector Engagement: Business in the U.S. public sector is picking up, with a major framework contract awarded by the U.S. government and initial orders from the United States Army.
Regional Performance: Cloud revenue growth was particularly strong in APJ and EMEA regions, with standout performances in Brazil, France, Germany, India, Italy, and South Korea.
Operational Profit Growth: Operating profit increased by 19% in Q3, despite a EUR 200 million negative impact from tax litigation provisions and workforce transformation expenses.
Free Cash Flow: Free cash flow increased by 5% to EUR 1.3 billion, driven by higher profitability and lower restructuring payments.
AI Strategy: SAP is focusing on combining large language models with business process and contextual data to deliver high-value AI use cases. Partnerships with OpenAI and Perplexity are enhancing AI capabilities.
Partnerships and Expansion: SAP launched software offerings with AWS for India and Europe and partnered with OpenAI to provide solutions for the German public sector.
Macroeconomic Uncertainties: The broader macroeconomic backdrop presents persistent challenges and uncertainties, which could impact SAP's business performance and growth.
Delayed Bookings: Delayed bookings in the first half of the year, particularly in sectors such as industrial manufacturing and public sector, have led to SAP expecting to reach the lower end of its cloud revenue outlook for fiscal year 2025.
Workforce Transformation Costs: The workforce transformation program has incurred significant costs, with an additional EUR 100 million of expenses anticipated in Q4 2025.
Decline in Software Licenses Revenue: Software licenses revenue decreased by 42% in Q3, indicating a shift in customer preferences or market trends that could impact traditional revenue streams.
Tax Litigation Provisions: A change in case law has negatively impacted SAP's tax litigation provisions, resulting in approximately EUR 100 million in additional costs.
Sector-Specific Challenges: Sectors such as industrial manufacturing and public sector have shown delayed engagement and bookings, which could affect revenue growth in these areas.
Pipeline for Q4 and 2026: The pipeline for Q4 and 2026 looks strong, with key industries unlocked where business had previously stalled. SAP confirms its ambition to accelerate total revenue growth through 2027.
AI as a growth enabler: AI is becoming a key enabler of growth, with plans to introduce AI assistants in June to support specific personas and functions in companies. AI adoption is expected to significantly increase, with end users consuming SAP Business AI at a higher frequency and broader scope.
Cloud revenue and backlog: Cloud revenue rose 27% in Q3, with consistent growth of over 25% for five consecutive quarters. Current cloud backlog also increased by 27%, and the cloud ERP suite delivered its 15th consecutive quarter of growth exceeding 30%.
U.S. public sector and framework contracts: Business in the U.S. public sector is picking up, with SAP NS2 awarded a major framework contract with the U.S. government. The United States Army signed a contract to migrate from on-premise systems to the cloud, expanding SAP's access to future opportunities in this market.
New software and cloud offerings: SAP introduced a new software and cloud offering for highly regulated customers and governments, allowing access to the entire cloud portfolio in a customer data center. This offering has generated strong customer interest and a robust pipeline for 2025 and 2026.
AI-driven operational improvements: SAP is co-developing AI assistants with customers to maximize business value, with examples of significant efficiency gains in supply chain management, customer service, and industry-specific processes.
Cloud revenue outlook for 2025: SAP expects to reach the lower end of its cloud revenue outlook for fiscal year 2025 due to delayed bookings in the first half of the year. However, the company forecasts free cash flow to exceed the previous target of EUR 8 billion.
Total revenue growth through 2027: SAP reiterates its ambition to accelerate total revenue growth through 2027, supported by a robust pipeline of opportunities and strong competitive momentum.
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The earnings call highlights strong cloud revenue growth, AI adoption, and a robust pipeline for H2 2025. Management expressed confidence in Q4 performance, with a focus on execution and cost optimization. Despite some market uncertainties, SAP's strategic partnerships and focus on data quality enhance its competitive position. The Q&A section revealed confidence in revenue acceleration, with strong free cash flow guidance. Overall, these factors contribute to a positive outlook for SAP's stock price in the short term.
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