Following my coverage on SAP (NYSE: SAP ) in Jul'24, for which I recommended a buy rating as demand remains very strong, as indicated by the solid CCB growth trend and revenue growth performance, this post is to provideI take a fundamentals-based approach to value investing.I disagree with the common misconception held by many investors that low multiple stocks must be cheap. I look for companies that offer the best long-term durability at the most affordable prices. Consequently, I have a propensity to be ...

Christian Klein, Co-CEO of German software and cloud computing giant SAP, speaks during a press conference to present SAP's financial results for 2019 on January 28, 2020 in Walldorf, southwestern Germany. - German software giant SAP reported a bottom line undermined by heavy restructuring costs, but lifted forecasts for the year ahead.Europe should avoid regulating artificial intelligence and focus its attention on the results of the technology instead, the CEO of German enterprise tech giant SAP told CNBC ...

Financial Data and Key Metrics - Current cloud backlog increased by 29% to EUR15.4 billion, driven almost entirely organically [5] - Cloud revenue growth accelerated to 27%, reaching EUR4.4 billion, with Cloud ERP Suite growing 36% to EUR3.6 billion [5] - Operating profit increased by 28% to EUR2.2 billion, with an operating margin of 26.5% [5] - Total revenue grew by 10% year-over-year to EUR8.5 billion, primarily driven by cloud revenue strength [18] - Free cash flow increased by 44% to EUR1.2 billion in Q3, with a 47% increase to EUR5 billion for the first nine months [21] Business Line Performance - Cloud ERP Suite was the main driver of growth, accounting for 84% of total cloud revenue [18] - 30% of cloud order entry in Q3 included AI use cases, with strong uptake in sourcing, supply chain, and manufacturing [4][26] - The company completed the acquisition of WalkMe, which contributed EUR14 million to cloud revenue in Q3 [18][42] Regional Performance - Cloud revenue performance was particularly strong in APJ and EMEA, with robust growth in the Americas [20] - Key markets such as Brazil, Chile, Germany, Italy, India, Japan, and Spain showed outstanding cloud revenue growth [20] Strategy and Industry Competition - The company is focusing on its "land and expand" strategy, with a strong emphasis on adoption and consumption [10] - SAP is leveraging its AI strategy, with over 100 AI use cases embedded across its solutions and significant growth in GenAI hub consumption [13] - The company is restructuring its go-to-market model to improve productivity and sales efficiency, with a focus on empowering its partner ecosystem [10][11] Management Commentary on Operating Environment and Future Outlook - Management expressed confidence in the company's resilience and strategic execution, despite macroeconomic challenges [22] - The company raised its 2024 outlook, expecting an operating profit of EUR7.8 to EUR8 billion, and remains on track for its 2025 financial goals [15][21] - Management highlighted strong demand for cloud solutions, particularly from large enterprises, and expects continued double-digit revenue and operating profit growth [15][22] Other Important Information - The company announced a major upgrade to its digital copilot, Joule, which now includes collaborative AI agents and over 500 skills [12] - SAP introduced the SAP Knowledge Graph, which leverages decades of business process knowledge to enhance GenAI capabilities [14] Q&A Session Summary Question: Large deals contribution and demand environment [24] - Large deals exceeding EUR5 million accounted for over 60% of cloud order entry, reflecting strong momentum from the installed base [24] - Management noted that macroeconomic challenges persist, but demand for cloud ERP solutions remains strong, particularly in Germany [25] Question: AI use cases and pricing [24][26] - 30% of deals included AI use cases, with upside potential in sourcing, supply chain, and manufacturing [26] - AI-driven deals are bundled with premium offerings like RISE and GROW, providing value to customers and growth opportunities for SAP [26] Question: Management changes and reorganization risks [29] - Management changes are part of the company's ongoing restructuring, with a focus on improving productivity and sales efficiency [29] - The company is confident in its ability to execute its strategy and close deals in Q4, despite the reorganization [34] Question: Free cash flow drivers [30] - Free cash flow growth in Q3 was primarily due to increased profitability and lower tax payments, with some phasing effects [41] Question: Cloud ERP Suite growth drivers [36] - Growth in Cloud ERP Suite was driven by large customer migrations to RISE, strong net new customer acquisition, and platform extensions [37] Question: Gross margin outlook [36] - Cloud gross margin improved by 0.6 percentage points to 73.7%, with further expansion expected in 2025 due to operational efficiencies and scale [39][40] Question: US federal business and investigations [45] - The US federal business is a small fraction of total revenue, and recent investigations are unrelated to SAP's case from 2022 [46][48] Question: Cross-sell and upsell opportunities [51] - The company sees significant cross-sell and upsell potential in its installed base, particularly in HR, finance, and supply chain [52] Question: Support revenue trends [64] - Support revenue declined by 2% in Q3, with a gradual decline expected as more customers migrate to the cloud [65] Question: Q4 cost and operating profit outlook [64] - Q4 operating profit guidance is conservative due to phasing effects in software revenue, employee bonuses, and WalkMe integration costs [68] Question: Backlog growth and go-to-market changes [71] - Backlog growth of 29% was largely driven by the inclusion of WalkMe, with organic growth remaining flat [72] - Go-to-market changes, including partner ecosystem expansion and cross-sell incentives, will be implemented starting January 2025 [73][74]

Core Insights - SAP reported strong financial results for Q3 2024, with significant growth in cloud revenue and an optimistic outlook for the remainder of the year [2][4][5] Financial Performance - Current cloud backlog increased by 25% to €15.4 billion, up 29% at constant currencies [2][4] - Cloud revenue rose by 25% to €4.35 billion, with a 27% increase at constant currencies [2][4] - Cloud ERP Suite revenue grew by 34% to €3.64 billion, up 36% at constant currencies [2][4] - Total revenue increased by 9% to €8.47 billion, with a 10% rise at constant currencies [2][4] - IFRS cloud gross profit was up 26% to €3.18 billion, while non-IFRS cloud gross profit increased by 27% to €3.21 billion [2][4] - Operating profit rose by 29% to €2.21 billion, with non-IFRS operating profit up 27% to €2.24 billion [2][4] Earnings and Cash Flow - Basic earnings per share from continuing operations increased by 15% to €1.25 [2][4] - Free cash flow for Q3 increased by 44% to €1.25 billion, with a total of €5.03 billion for the first nine months of 2024 [4][5] Strategic Initiatives - SAP is focusing on business AI and has initiated a company-wide restructuring program expected to conclude in early 2025, affecting 9,000 to 10,000 positions [4][5] - The company has repurchased 16,709,250 shares at an average price of €157.09, totaling approximately €2.62 billion under its share repurchase program [4][5] Financial Outlook - SAP raised its 2024 outlook for cloud and software revenue to €29.5 – 29.8 billion, up 10% to 11% at constant currencies [5][6] - The expected non-IFRS operating profit for 2024 is now €7.8 – 8.0 billion, reflecting a 20% to 23% increase at constant currencies [5][6] - Free cash flow outlook for 2024 is projected at €3.5 – 4.0 billion [5][6] Customer Engagement - Numerous global customers are adopting SAP solutions, including "RISE with SAP" and "GROW with SAP," indicating strong market demand [5] - SAP's cloud revenue performance was particularly robust in the APJ and EMEA regions, with notable growth in countries like Brazil, Germany, and India [5]

Earnings Estimate Revisions - SAP SE is seeing favorable earnings estimate revision activity, which is generally a precursor to an earnings beat [1] - The Most Accurate Estimate for the current quarter is $1.33 per share, compared to the Zacks Consensus Estimate of $1.31 per share, indicating a Zacks Earnings ESP of +1.37% [1] Earnings ESP and Market Performance - A positive Zacks Earnings ESP has proven to be powerful in producing positive surprises and outperforming the market [2] - Stocks with a positive Earnings ESP and a Zacks Rank 3 (Hold) or better show a positive surprise nearly 70% of the time and have returned over 28% on average in annual returns [2] SAP's Position - SAP has a Zacks Rank 3 and an ESP in positive territory, suggesting potential for a positive earnings surprise [2] - Recent earnings estimate revisions indicate that good things are ahead for SAP, with a potential earnings beat in the upcoming report [2]

SAP SE (SAP) is scheduled to report results for the third quarter of 2024 on Oct. 21. Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar. The Zacks Consensus Estimate for third-quarter 2024 earnings has been revised 0.8% downward in the past 60 days and is pegged at $1.31 per share. Additionally, the consensus mark implies a 17.1% decline from the yearago actual. Image Source: Zacks Investment Research The Zacks Consensus Estimate for third-quarter 2024 revenues is currently pegged at ...

Core Insights - SAP has introduced significant AI innovations at the TechEd 2024 conference, positioning its generative AI copilot, Joule, as central to transforming business operations [1][2] - The new capabilities include collaborative AI agents and the SAP Knowledge Graph, aimed at enhancing productivity and decision-making [1][5] Group 1: AI Innovations - SAP's Joule now supports 80% of the most-used business tasks, integrating collaborative AI agents that can handle complex workflows [2][3] - Collaborative multi-agent systems will allow specialized AI agents to work together, improving efficiency by breaking down silos [3] Group 2: Use Cases - Two use cases were highlighted: one for dispute management using autonomous AI agents to resolve issues like incorrect invoices, and another for financial accounting that automates processes such as bill payments and invoice processing [4] Group 3: Data Utilization - The SAP Knowledge Graph, set to be available in Q1 2025, will enhance business understanding by mapping relationships across SAP's data landscape, reducing manual data modeling complexity [5] Group 4: Developer Empowerment - New generative AI capabilities for developers, including code explanation and documentation search, aim to reduce development time for Java and JavaScript [6] - The introduction of an Extensibility Wizard will simplify the extension process for developers using SAP S/4HANA Cloud Public Edition [6] Group 5: Upskilling Initiatives - SAP has fulfilled its commitment to upskill 2 million people globally by 2025, offering role-based certifications and training materials to bridge the digital skills gap [7]

SAP SE (SAP) is facing an intensified investigation by U.S. prosecutors for possible price-fixing alongside Carahsoft Technology Corp. The investigation now includes their work with almost 100 government agencies, as revealed in a Bloomberg report. Citing federal court records filed in Baltimore, Bloomberg added the Justice Department has issued a legal demand to Carahsoft for documents related to its dealings with 94 civilian government agencies relating to SAP products. Earlier, Carahsoft refused to provi ...

SAP SE's (SAP) shares have been performing well on the trading front, with a gain of 14.9% in the past six months. The stock has outperformed its sub-industry, Zacks Computer and Technology sector and the S&P 500 composite's growth of 1%, 10.5% and 9.6%, respectively. SAP stock's good run on the trading front can be attributed to the sustained momentum in the cloud business, which is aiding the top-line performance. Image Source: Zacks Investment Research SAP stock closed the last trading session at $220.47 ...

SAP SE (SAP) has joined forces with Ambipar to launch Net Zero as a Service, aimed at addressing climate change. This initiative integrates SAP's powerful cloud solutions with Ambipar's extensive expertise in carbon credit generation and trading, helping customers effectively track and mitigate their carbon emissions. With Net Zero as a Service and its alliance with Ambipar, SAP is enhancing its dedication to offering holistic sustainability management solutions, enabling customers to prepare for the future ...