SAP Reports 28 Percent Cloud Revenue Growth, Surging S/4 HANA Sales In Q3

SAP's cloud subscription and support revenue surged 28 percent in the company's third quarter and the vendor's next-generation S/4 HANA line of business applications continued to attract new customers.

The strong results resulted in SAP raising its outlook for the rest of the fiscal year.

For the quarter ended Sept. 30, SAP reported total revenue of 5.38 billion Euros (U.S. $5.85 billion), up 8 percent from 4.99 billion Euros (U.S. $5.43 billion) in the same quarter one year earlier.

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"The bottom line is this: We're growing in every region of the world, our growth drivers are performing on all cylinders, our pipeline is strong for the fourth quarter, and all of these factors led us to confidently raise our full-year outlook for both the top and bottom lines," said CEO Bill McDermott in an earnings call with financial analysts Friday.

Cloud software subscription and support revenue for the quarter was 1.03 billion Euros (U.S. $1.12 billion), up 28 percent from 1.01 billion Euros (U.S. $1.10 billion) in last year's third quarter.

Revenue from software license sales and support grew 5 percent year-over-year to 3.69 billion Euros (U.S. $4.01 billion) from 3.52 billion Euros (U.S. $3.83 billion).

Like many software vendors, SAP is trying to grow its cloud software sales without cannibalizing sales of its on-premise software products.

SAP added 400 customers for the S/4 HANA line of applications during the quarter, bring the total customer base for the product to more than 4,100 since its introduction last year. About 40 percent of the 400 S/4 HANA adoptees are new SAP customers, according to the company, and McDermott said more than 10 percent of SAP's ERP application customer base is now using S/4 HANA.

The S/4 HANA sales are also leading to increased sales of other software in SAP's product portfolio, McDermott said.

Operating profit in the third quarter was 1.10 billion Euros (U.S. $1.20 billion), down 9 percent from $1.21 billion Euro (U.S. $1.32 billion) in last year's third quarter. After-tax profit was 725.0 million Euros (U.S. $788.9 million), down 19 percent from 895.0 million Euros (U.S. $973.2 million) one year earlier.

The company attributed the profit declines to an increase in stock-based compensation expenses following the strong appreciation of SAP's share price during the quarter. "I like to think of this as the happy cost of doing business," McDermott said on the earnings call.

SAP now expects non-IFRS cloud subscription and support revenue for all of 2016 to be in the range of 3.00 billion and 3.05 billion Euros (U.S. $3.26 billion to $3.32 billion) with the upper end of that range representing 33 percent year-over-year growth. The company expects cloud and software revenue to increase between 6.5 and 8.5 percent from 17.23 billion Euros (U.S. $18.74 billion) in 2015.

"All metrics are tracking to the upper end of the outlook we set at the beginning of the year," the CEO said.