SAP (SAP, Financial) reported stronger-than-expected results for the third quarter, driven by robust demand for enterprise artificial intelligence. The company has also revised its full-year guidance upwards. Several Wall Street analysts have since increased their price targets for SAP's stock.
The financial report revealed that revenue under non-IFRS standards grew by 9.4% year-over-year to €8.47 billion, exceeding analysts' expectations of €8.45 billion. Earnings per share also surpassed forecasts at €1.23. SAP's cloud and software revenue reached €7.429 billion in the third quarter, marking a year-over-year increase of about 11%. Cloud revenue alone grew by approximately 25% to €4.351 billion, aligning with analysts' estimates. Moreover, the company noted a 25% year-over-year increase in cloud business backlog orders, totaling €15.377 billion.
Following the announcement of a new AI-focused strategy earlier this year, SAP's CEO, Christian Klein, is keen on accelerating the company’s transition to the cloud. During the earnings call, Klein highlighted that around 30% of cloud transactions in the third quarter included business AI use cases.
Looking ahead, SAP has updated its 2024 guidance, projecting cloud and software revenue between €29.5 billion and €29.8 billion, up from the previous estimate of €29 billion to €29.5 billion. The forecast for 2024 cloud revenue remains unchanged at €17 billion to €17.3 billion. Free cash flow is expected to be €3.5 billion to €4 billion, a range that has been slightly increased from the prior €3.5 billion estimate.
Citigroup maintained its "buy" rating for SAP and raised its price target from €240 to €260. The bank's analysts lauded SAP's consistent performance and noted that its third-quarter results and revised 2024 guidance significantly exceeded expectations. They also mentioned that comments made during the earnings call reflected confidence in business growth, profit leverage, and market changes starting in 2025 that could bolster SAP’s expansion and productivity goals.
Bank of America also upheld its "buy" rating, adjusting the target price from €235 to €243 (from $252 to $261) and reaffirmed SAP as their top pick in the software sector. Despite noting potential challenges for fourth-quarter backlog growth due to year-over-year comparisons and uncertain macroeconomic conditions, the outlook remains optimistic about long-term growth opportunities, including AI.
Additionally, JMP Securities maintained an "outperform" rating for SAP, raising the target price from $245 to $300.
