SAP Cloud Growth Could Defy Tech Downturn

SAP SE (SAP), Germany's most valuable company, heads into its first-quarter 2023 earnings report with expanding margins in its cloud business, where revenue growth is expected to outpace other segments on the back of new enterprise resource planning (ERP) offerings.

SAP will probably say gross profit increased to €5.3 billion (about $5.8 billion) in the first quarter from €5.0 billion a year ago, according to analyst estimates compiled by Visible Alpha. Diluted earnings per share probably fell to €0.57 ($0.62) from €0.63. Total revenue likely rose 6% to €7.5 billion (roughly $8.2 billion) from €7.1 billion a year ago. SAP reports results before U.S. markets open Friday, April 21.

Analysts expect SAP's cloud revenue to grow over 19% to €3.4 billion (about $3.7 billion). This is a slowdown from the year-ago quarter's 31% growth rate, but cloud is nonetheless a standout segment for the company, as its software licensing and support revenue are each expected to decline from a year ago. Cloud sales are predicted to be about 45% of total revenue for the quarter.

Gross margins on cloud services are also expected to expand over 124 basis points to 71.3%, boosting segment profit by more than 20%.

SAP's growth in cloud computing revenue in recent quarters is in contrast with a broader slowdown in big tech cloud sales that negatively impacted rivals like Microsoft Inc. (MSFT), Alphabet Inc. (GOOG), and Amazon.com Inc.'s (AMZN) Amazon Web Services (AWS) in the last earnings cycle. Ahead of its first-quarter report, Amazon CEO Andy Jassy said the company still faced "short-term headwinds" in its cloud business.

SAP shares rallied beginning in September 2022 and have outpaced the broader market, climbing 36% in the last year compared with 18% for the S&P 500 Information Technology Index.

_{Source: Visible Alpha}