SAP SE, Europe's largest software company, reported first-quarter cloud revenue that exceeded analyst expectations, with its U.S.-traded ADRs rising approximately 7% in after-hours trading.
On April 23, after U.S. markets closed, SAP released its first-quarter financial results for fiscal year 2026, delivering a performance that surpassed expectations:
Total revenue for the quarter reached $11.17 billion, marking a 6.1% year-over-year increase, broadly aligning with market forecasts. Cloud revenue amounted to €5.962 billion (approximately $6.96 billion), representing a 27% increase at constant currencies, surpassing the analyst consensus estimate of €5.9 billion. The actual year-over-year growth also remained strong at 19%, exceeding expectations. First-quarter profit grew by 17% year-over-year. GAAP earnings per share were $1.94, beating the expected $1.81. Adjusted earnings per share came in at $2.01, also exceeding the market forecast of $1.92. SAP maintained its full-year cloud revenue guidance of €25.5 billion to €26.2 billion.
SAP CEO Christian Klein stated that the company had a strong first quarter, growing faster than the market and gaining share with its AI solutions.
Notably, the current cloud backlog grew by 25% at constant currencies, reaching $25.58 billion, matching analyst expectations. This metric had been a sensitive point for the market; when SAP reported the same 25% growth rate in January, its stock price declined, with Klein previously describing such a pace as "disappointing."
However, the market reaction this time was markedly different. Following the earnings release, the company's ADRs climbed about 7% in after-hours trading. Investors appeared more willing to reassess the quality of this growth in the context of advancing AI commercialization. Although SAP's stock price has declined 32% year-to-date, this earnings report undoubtedly provided some breathing room.
Cloud business showed robust growth across all three major global regions. Broken down geographically, SAP's cloud revenue experienced strong expansion in all key markets. At constant currencies, cloud revenue in EMEA (Europe, Middle East, and Africa) reached €2.625 billion, a 29% increase. Americas cloud revenue was €2.754 billion, up 23%. Asia Pacific and Japan (APJ) cloud revenue grew 30% to €947 million, representing the fastest growth rate among the three regions.
Total cloud and software revenue reached €9.034 billion at constant currencies, an increase of 14%. EMEA remained the largest contributor, with cloud and software revenue of €4.037 billion, followed by the Americas at €3.630 billion and APJ at €1.368 billion. Looking at total revenue, the German domestic market grew by 11%, indicating SAP maintains a solid foundation in its home market.
The central narrative for SAP this quarter was its strategic shift to deeply embed AI into its cloud service ecosystem. CEO Christian Klein stated in the earnings release that momentum in business AI supported the quarter's performance, with the company delivering tangible results for customers and continuing to gain market share.
However, this transformation is not without challenges. Klein acknowledged that the AI transition period might bring "short-term headwinds," as the company gradually shifts its business model from traditional subscriptions towards a consumption-based billing model tied to AI usage.
The potential risk in this model change lies in the fact that consumption-based revenue is far less predictable than stable subscription income. Whether growth in usage volume can compensate for potential subscription losses remains uncertain. J.P. Morgan analysts referred to this as "uncharted territory," noting that "competition today is more intense than we have seen at any point in the past."
Concurrently, some SAP partners and customers have publicly criticized the cost-effectiveness of its early AI tools, creating a contrast with the AI value narrative Klein is trying to convey to the market. Analysis suggests that balancing pricing strategy with customer retention will be a core challenge over the coming quarters.
This is not the first time SAP has faced significant pain from a large-scale business model shift. In 2020, under Klein's leadership, SAP transitioned from an on-premise software licensing model to a cloud subscription model, which also triggered a significant stock price correction that took approximately two years to recover from. Currently, SAP's market capitalization has fallen out of the top ten in Europe from its peak last year, with the stock down 32% year-to-date.
Market concerns primarily focus on two points: first, whether emerging AI-native enterprise software companies can bypass traditional giants like SAP, directly automating and replacing many software subscription needs; and second, whether the shift to a consumption-based model will reduce revenue predictability in the short term. Klein is restructuring SAP's executive board to navigate this new deep transformation.
Despite rising external uncertainties, SAP maintained its full-year guidance. The company's full-year cloud revenue is projected to be between €25.8 billion and €26.2 billion (approximately $30.1 billion to $30.6 billion), representing 23% to 25% growth. Cloud and software revenue is expected to be in the range of $42.2 billion to $43.0 billion, implying 12% to 13% growth.
Regarding workforce size, as of the end of March 2026, SAP's global headcount reached 111,038, up from 108,187 a year earlier. The number of research and development personnel expanded to 37,947, reflecting the company's continued investment in technology.
Notably, in the first quarter, SAP paid €408 million (approximately $480 million) to settle the Teradata lawsuit and recorded an additional €29 million in expenses. The resolution of this pending litigation eliminated a potential risk exposure.
Overall, SAP's first-quarter earnings provided sufficient evidence to support the narrative that "cloud growth remains healthy." However, the company is just beginning to navigate the challenging phase of AI transformation. How the shift from a subscription to a consumption-based business model will impact the revenue trajectory remains to be seen over the coming quarters.
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