To The Moon

Germany's and Europe's largest software company, $SAP SE (SAP)$, announced its Q2 2024 results after the bell on July 22, rising more than 6% after the bell to a new all-time high.,

Key results for the quarter exceeded expectations:

• Total revenue: up 10% year-on-year to €8.3 billion, 0.3% above expectations

• Cloud revenues: up 25% year-on-year to €4.2 billion, in line with expectations, with cloud ERP suite revenues up 33%.

• Current cloud order backlog: to €14.8 billion, up 28% year-over-year.

• EPS: $1.1, up 35% year-over-year and above expectations of $1.06.

• Free cash flow: up 114% year-over-year to €1.3 billion.

Financial resources reorganization plan

SAP announced a treasury reorganization plan in 2024 that is expected to affect approximately 8,000 employees.The impact is described below:

• Redundancies and retraining: optimization of the organizational structure through voluntary departures and internal retraining measures.

• Restructuring costs: expected to be approximately EUR 2 billion, most of which will be recognized in the first half of 2024.

• Operational Efficiency Improvements: By streamlining the business and improving operational efficiency, SAP can dedicate more resources to strategic growth areas such as AI and cloud computing.

• Improved financial performance: The restructuring plan is expected to generate operational savings of approximately €200 million, further improving the company's profitability.

AI Strategy

SAP's AI strategy aims to deeply integrate AI technologies into all its solutions to improve business efficiency, optimize resource allocation and drive innovation.The specifics and ways to improve competitiveness are as follows:

• Embedded AI Functionality: SAP embeds AI functionality in various product lines, such as Joule AI Assistant and CX AI Toolkit, to improve work efficiency and user experience.

• Business AI solutions: SAP leverages AI technology to build business AI solutions that help companies automate and optimize in different areas.

• Generative AI: SAP plans to deliver more than 100 generative AI scenarios by the end of 2024 to further drive business innovation.

• Productivity Improvement: By integrating generative AI into workflows, SAP helps organizations increase productivity, reduce manual intervention, and improve efficiency.

• Business Optimization: AI technology enables SAP to provide smarter solutions that help enterprises optimize complex business processes and improve decision-making efficiency.

• Innovation-driven: SAP's AI strategy not only focuses on current business needs, but is also committed to driving future technological innovations that enable organizations to remain competitive in a rapidly changing marketplace.

  

Future Outlook

• Full-year guidance for 2024: SAP expects cloud revenues to reach €17 billion to €17.3 billion, up 24% to 27% year-on-year; cloud and software revenues are expected to be €29 billion to €29.5 billion, up 8% to 10% year-on-year.

• 2025 target raised: SAP raised its 2025 operating profit target, which is expected to increase by about €200 million due to the expansion of its transformation program.

• Long-term growth prospects: SAP is confident of achieving accelerated top-line growth by 2027.

• Business AI continues to evolve: SAP plans to deliver more than 100 generative AI scenarios by the end of 2024, which is expected to further drive growth and innovation.

• Transformation program expanded: SAP expects to impact 9,000 to 10,000 jobs and restructuring costs are expected to be around €3 billion, but is expected to deliver an additional €200 million in operational savings.

Focus of the call

1. Macroeconomic impact

QUESTION: Mark Moerdler, Sanford C. Bernstein & Co. LLC, asked why SAP has not shown the macroeconomic impact that other companies have cited, and whether it is because of execution issues with the business model or because of timing issues.

Response: Christian Klein, CEO, said that SAP had a great first half and entered the second half of the year with a healthy sales and innovation pipeline, and that the launch of the GenAI use case and the positive feedback from customers showed great value.In addition, SAP's "best-of-breed" strategy is working, and customers are gaining confidence that they understand and accept the need to connect different business modules together.

2. Reorganization Plan

QUESTION: Analysts have expressed concern about the details of the restructuring plan and its impact on the future.

RESPONSE: CFO Dominik Asam explained that the restructuring plan is expected to affect approximately 8,000 employees and the restructuring costs will be approximately €2 billion.Through voluntary departures and internal retraining measures, SAP will optimize its organizational structure, improve operational efficiency, and dedicate more resources to strategic growth areas such as AI and cloud computing.The reorganization is expected to result in operational savings of approximately EUR 200 million.

3. AI strategy

QUESTION: Analysts expressed concerns about SAP's AI strategy and its application in the business.

RESPONSE: Christian Klein detailed SAP's AI strategy, including embedded AI capabilities, business AI solutions, and generative AI.SAP plans to deliver more than 100 generative AI scenarios by the end of 2024 to further drive business innovation.AI technology helps SAP provide smarter solutions to optimize complexbusiness processes and improve decision-making efficiency.

4. Regional performance

Question: Analysts asked about SAP's performance in different regions.

RESPONSE: Dominik Asam noted that SAP's cloud revenue performance was particularly strong in APJ and EMEA, and also performed well in the Americas.Cloud revenue growth was particularly strong in Brazil, Canada, Germany, India, Japan and South Korea, while China, the US and Saudi Arabia also performed strongly.