The News: SAP’s Q2 2022 financial results saw cloud revenue soar by 34 percent to $3.1 billion from $2.3 billion one year ago as the intelligent cloud ERP software vendor announced its latest earnings on July 21. SAP’s total revenue increased 13 percent to $7.7 billion, up from $6.8 billion one year ago. Read the full Press Release at SAP.com
SAP’s Q2 2022 Cloud Revenue Increased 34% YoY to $3.1B
Analyst Take: SAP’s Q2 2022 performance was highlighted by impressive gains in cloud revenue and total revenue for the quarter, showing the company’s chops in a volatile tech market. Here are SAP’s Q2 results by the numbers:
- Q2 2022 revenue of $7.7 billion, up 13 percent from $6.8 billion for the same quarter in 2021. The Q2 revenue figure beat consensus estimates of $7.5 billion from analysts with Refinitiv.
- Q2 2022 cloud revenue of $3.1 billion, up 34 percent from $2.3 billion one year ago.
- Q2 2022 non-IFRS net income was $1.12 billion, down by 51 percent from $2.25 billion a year ago, largely due to market contraction because of the war in Ukraine and SAP’s decision to pull its business from Russia and Belarus following the invasion.
- Q2 2022 non-IFRS earnings per share of $0.98, down 45 percent from non-IFRS EPS of $1.79 one year ago.
For SAP, the cloud revenue rise to $3.1 billion for the quarter is particularly notable because it has now become the company’s largest revenue stream, surpassing all its other offerings. We believe this is a good sign for SAP as it deepens its roots in the cloud with offerings that are being visibly adopted by enterprise customers.
Certainly, the negative effects of the war in Ukraine and SAP’s business pullout from Russia and Belarus, particularly on the company’s significantly lower Q2 net income, is a challenge that SAP must and will address quickly. Those markets, while small overall, were important revenue generators for SAP. But now SAP must increase its efforts to develop and secure new markets for its services and products as it works to replace some of its former clients and markets. That will be a significant undertaking as the lingering Covid-19 pandemic and its challenges also continue, but I believe that SAP is up to the task and will be successful in making the needed adjustments.
But make no mistake — the financial impacts in SAP’s Q2 2022 numbers from the war in Ukraine and its business shutdowns in Russia and Belarus are likely more significant for SAP than for other companies due to its being headquartered in Germany and in Europe, where the war is a much more local threat. The company’s executives said in their earnings call that the latest earnings are right now exhibiting the main impacts of the war and its related events. We believe that through the guidance and experience of its leadership team, SAP will be able to weather the storm and come out stronger.
FX also weighed on the results slightly and will be something to continue to monitor for all large global tech companies. It wasn’t as much a focal point for the SAP earnings call as it was for IBM, it will absolutely weigh on SAP as it deals with the strengthening dollar.
SAP’s Q2 2022 results also reported that its cloud backlog exceeded $10.2 billion for the first time, showing the company’s sales strength and staying power in the market. That is impressive as global markets continue to be roiled with uncertainty and provides clear indication that the cloud transition is gaining momentum, which is paramount for SAP long-term.
SAP’s Near-Term Challenge
SAP is a backbone of businesses, large and small in almost every industry around the world. So even as many of its customers are affected by the war in Ukraine, the pandemic, and other issues, SAP is continuing to successfully grow its cloud revenue. SAP is a recurring revenue machine in terms of hundreds of thousands of customers that depend on SAP to run their businesses. You look at their overall revenue, and it’s very predictable, a lot like some of the other big software players. This is one of the things that has made SAP incredibly dependable, but growth and cloud have been question marks for some time.
Now we are seeing those questions being answered, and then almost immediately complicated by the pandemic, supply chain issues, the war in Ukraine and more. Still, the steady revenue growth for cloud and overall sales provides a positive outlook for SAP as it navigates its way through 2022.
SAP’s FY2022 Guidance
For the rest of 2022, SAP said it expects additional cloud and software revenue of $25.6 billion to $26 billion, including expected additional cloud revenue of $11.8 billion to $12.1 billion.
SAP said its guidance could certainly change as the year continues. “Other impacts due to this rapidly evolving situation are currently unknown and could potentially subject our business to materially adverse consequences should the situation escalate beyond its current scope,” the company stated.
It will be interesting to watch SAP’s continuing financial progress through 2022 and to see it respond to the constant changes that are heating up global markets and international tensions. SAP has plenty of experience in such matters and we expect to see the company come out of its current challenges intact and stronger than when it entered these challenges.
In the end, we see the cloud transformation as a pivotal one for the company. It is showing strength, and momentum, and in the long run will be one of the most critical components to how the company is valued—especially as it relates to future growth.
Disclosure: Futurum Research is a research and advisory firm that engages or has engaged in research, analysis, and advisory services with many technology companies, including those mentioned in this article. The author does not hold any equity positions with any company mentioned in this article.
Analysis and opinions expressed herein are specific to the analyst individually and data and other information that might have been provided for validation, not those of Futurum Research as a whole.