SAP SE, Europe's largest technology company by market capitalization, reported better-than-expected first-quarter earnings on Friday, sending its American depositary receipts up over 7% in premarket trading. The German software giant posted non-IFRS earnings of €1.72 per share, beating analyst estimates of €1.65, while total revenue rose 6% year-over-year to €9.55 billion.
Cloud revenue emerged as the headline figure, surging 19% to €5.96 billion, ahead of the €5.89 billion consensus estimate. The cloud backlog, a key forward-looking metric indicating contracted future revenue, grew 20% to €21.9 billion. Non-IFRS operating profit climbed to €2.87 billion from €2.46 billion a year ago, also beating the €2.71 billion consensus.
The strong results provided a sharp contrast to the broader software sector's recent struggles. Thursday's selloff saw SAP shares decline 6.2% amid a sector-wide rout triggered by earnings from IBM and ServiceNow that failed to excite investors despite solid numbers. The rebound suggests the market viewed SAP's performance more favorably in isolation.
Full-Year Outlook Maintained with Conditions
SAP reaffirmed its 2026 cloud revenue guidance of €25.8 billion to €26.2 billion, with total revenue growth in constant currencies expected to remain at similar levels as 2025 before accelerating in 2027. However, the outlook is contingent on two conditions: the successful closing of the planned acquisition of data management firm Reltio, expected in Q2 or Q3, and a de-escalation of the Middle East conflict.
CFO Dominik Asam specifically highlighted potential disruption in the Strait of Hormuz as a key risk factor. “We don’t see too long of a continuation of the shutdown of the Strait of Hormuz,” he told Barron’s, noting prolonged disruption could affect global supply chains and growth. He added dryly: “In such a meltdown scenario, SAP is probably the lesser of your concerns in terms of exposure in capital markets.”
AI Concerns Cast a Shadow
The earnings report comes amid a broader reassessment of software stocks as investors worry about AI disruption to traditional business models. SAP's share price declined 28% in the first quarter alone, which CFO Asam said led to an unusual financial benefit. “While we hedge the lion's share of our cash-settled grants, the sheer magnitude of the move in the unhedged portion, in combination with related social charges that are not hedged, provided this unintended relief,” Asam said. CEO Christian Klein acknowledged customer caution: “Is this enough when you are touching the payroll, the finance, the financial close, the supply chains of a customer? No, it's not enough. It's not that the customers don't see the value. They see the value. But we have to go the last mile.”
