SAP lifts outlook as cloud push gains traction in Q2

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SAP logo at SAP headquarters in Walldorf
FILE PHOTO: SAP logo at SAP headquarters in Walldorf, Germany, January 24, 2017. REUTERS/Ralph Orlowski

July 21, 2021

BERLIN (Reuters) -German business software group SAP raised its outlook for the second time this year as a strategic push to help customers shift their IT operations to the cloud gained traction in the second quarter.

SAP now expects cloud revenue to grow by 15%-18% in the year, helping its overall cloud and software revenue to gain by 2%-3%. Operating profit is now expected to be unchanged to down 4% for the year.

“We’re seeing strong adoption of our cloud portfolio as customers select SAP for their business transformation. Our strategy is working,” Chief Executive Officer Christian Klein said on Wednesday.

SAP ditched its mid-term forecasts last October as Klein went all-in on cloud services that generate subscription revenue spread out over time, in contrast to software licences that deliver chunky up-front fees.

He launched Rise with SAP, an all-in-one digital transformation package, at the start of this year and strong take-up helped drive 20% growth in the current cloud backlog – a measure of incoming business – during the second quarter.

Revenue, up 3% to 6.67 billion euros ($7.85 billion) in the quarter, was in line with median estimates of analysts compiled by Refinitiv. Operating profit, up 3% at 1.92 billion euros, was ahead of the median view.

SAP lifted its forecast for cloud and software revenue for the full year by 200 million euros to 23.6 billion-24 billion euros, while it now sees operating profit at 7.95 billion-8.25 billion euros – an increase of 150 million euros at the lower boundary.

The company, based in Walldorf, reports financials on a non-IFRS, or adjusted, basis at constant currencies to strip out effects like the impact of share-based compensation or shifts in the dollar-euro exchange rate.

($1 = 0.8495 euros)

(Reporting by Douglas Busvine; Editing by Riham Alkousaa and Sherry Jacob-Phillips)