SAP says some customers are dragging their feet on contract sign-offs

Share price dips as cloud sales outlook disappoints amid slow US public sector bookings

SAP disappointed investors today after reporting full-year cloud revenue at the bottom end of its guidance range, with execs saying customers in manufacturing and the public sector are taking longer to sign contracts.

The European software giant now expects sales to be near the floor of its €21.6-21.9 billion ($25.2-25.5 billion) forecast. Shares were down 2 percent at the time of writing.

SAP generated €9.1 billion in global revenue for its calendar Q3, up 7 percent year-on-year. Cloud revenue was up 22 percent to €5.29 billion, lower than the €5.33 billion analysts had projected. Operating profit climbed 12 percent to €2.49 billion.

Responding to a question about elongated sales cycles and straitened US public sector spending, CEO Christian Klein told investors he was optimistic deals would pick up despite challenges in the first half of the year.

"You're going to miss in the US public sector and also in a few deals in the manufacturing space… it's hard to catch up. Looking at our Q4 pipeline, a lot of these deals [are] now coming back. And that gives us a lot of confidence," he said.

SAP CFO Dominik Asam said the company's cloud revenue outlook for fiscal 2025 would now be "toward its lower end [of guidance] due to delayed bookings in the first half of the year, as already highlighted in July."

"We have seen this dynamic of back-end loaded bookings again in Q3, especially in sectors such as industrial manufacturing and public sector," he said.

SAP, a foundational company in the ERP market, has in recent decades branched out into other business applications including HR, CRM, and supply chain management.

However, Asam said ERP remained the main driver of growth. "It delivered 31 percent of growth in Q3, demonstrating the unabated momentum of strong market share gains in what by now represents 87 percent of cloud revenues and actually more than 100 percent of the year-over-year increase in cloud revenues."

Earlier this month, Gartner warned some SAP Cloud ERP Private customers were receiving renewal proposals with double-digit price increases after failing to negotiate a renewal price cap. At the time, The Register asked SAP to comment on cloud pricing.

Talking to investors on the conference call, Klein said customers understood they would pay a premium for SAP's ERP platform in the cloud.

"This is not only about putting an ERP system on a public cloud infrastructure, in a datacenter... There are sometimes much higher standards [required], which we can fulfill, but customers understand that they have to pay a premium for that. Our sales team knows that when they want to make their quota, there is a volume included, but we also have a pricing element included." ®