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SAP Announces Q3 Results for 2020

After an initial review of its third-quarter 2020 performance, SAP recently announced its preliminary financial results for the third quarter, which ended September 30, 2020.

The main highlights of the announcement include:

  • Current Cloud Backlog of €6.6 Billion, Up 16% At Constant Currencies

  • IFRS Cloud Gross Margin Up 1.8pp; Non-IFRS Cloud Gross Margin Up 0.7pp At Constant Currencies

  • IFRS Operating Margin Down 2.2pp; Non-IFRS Operating Margin Up 1.3pp At Constant Currencies On Strong Prior Year Comparison

  • IFRS EPS Up 26%; Non-IFRS EPS Up 31%

  • Operating Cash Flow Up 54%, Free Cash Flow Up 79% Year-To-Date

  • Updates 2020 Outlook and Mid-Term Ambition

  • Targeting Significant Expansion of Cloud Revenue to More than €22 Billion, Share of More Predictable Revenue of Approximately 85%, Non-IFRS Cloud Gross Margin of Approximately 80% by 2025

  • Targeting Double-Digit Non-IFRS Operating Profit Growth from 2023 to 2025

One of the main results we can take from this announcement is SAP's change in long-term goals. The original 2020 outlook was released in April of 2020, but the world as a whole continued to face the Covid-19 pandemic and the unpredictable results that come with it. SAP's 2020 outlook now expects:

  • €8.0 – 8.2 billion non-IFRS cloud revenue at constant currencies (previously €8.3 – 8.7 billion)

  • €23.1 – 23.6 billion non-IFRS cloud and software revenue at constant currencies (previously €23.4 – 24.0 billion)

  • €27.2 – 27.8 billion non-IFRS total revenue at constant currencies (previously €27.8 – 28.5 billion)

  • €8.1 – 8.5 billion non-IFRS operating profit at constant currencies (previously €8.1 – 8.7 billion) SAP continues to expect its share of more predictable revenue to be approximately 72%.

  • Operating cash flow of approximately €6.0 billion (previously above €5.0 billion) and a free cash flow above €4.5 billion (previously approximately €4.0 billion).

By 2025, SAP expects:

  • More than €36 billion non-IFRS total revenue

  • More than €22 billion non-IFRS cloud revenue

  • More than €11.5 billion non-IFRS operating profit

  • A significant expansion of the Company’s more predictable revenue share to approximately 85%

For Q3, earnings per share (EPS) was up 26% year over year to €1.32 (IFRS) and up 31% year over year to €1.70 (non-IFRS). The share of more predictable revenue grew to 74% in the third quarter.