SAP Cloud Growth Could Defy Tech Downturn

The German software company is expected to post double-digit cloud revenue growth and widening margins in Q1

Signage at the headquarters of SAP AG, Germany's largest software company on January 8, 2013 in Walldorf, Germany.

Thomas Lohnes / Getty Images

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.

Key Takeaways

  • SAP is expected to report diluted EPS for the first quarter of $0.63 vs. $0.69 in the prior-year quarter.
  • Cloud revenue growth could slow to 19% year-over-year.
  • SAP's cloud business has fared better than its competitors' in recent months, driven by a new ERP offering. It could make up about 45% of the company's total revenue.

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 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.

One-Year Trailing Total Return for S&P 500 Information Technology Index and SAP
Source: TradingView.
SAP Key Stats
  Estimate for Q1 FY 2023 Actual for Q1 FY 2022 Actual for Q1 FY 2021
Diluted Earnings Per Share ($) 0.63 0.69 0.96
Revenue ($B) 8.2 7.8 7.0
Cloud Revenue ($B) 3.7 3.1 2.4

Source: Visible Alpha

Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.
  1. SAP SE. "SAP Launches Cloud ERP Offering for Midsize Companies."

  2. Visible Alpha. "Financial Data."

  3. SAP SE. "SAP to Release First Quarter 2023 Results."

  4. Amazon. "Amazon Announces Fourth Quarter Results."

  5. Barron's. "Big Tech Cloud Spending Is Slowing. What It Means for Chip Stocks."

  6. Amazon. "2022 Letter to Shareholders."

Take the Next Step to Invest
The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.