SAP turned in disappointing quarterly results, prompting the company to switch gears and focus on accelerating customers’ cloud adoption.
SAP revealed its Q3 2020 results Sunday, reporting revenue of roughly €6.54 billion IFRS. This was a 4% decrease year-over-year, and was down from €6.74 billion in Q2.
“COVID-19 has created an inflection point for our customers,” said Christian Klein, CEO. “The move to the cloud combined with a true business transformation has become a must for enterprises, to gain resiliency and position them to emerge stronger out of the crisis. Together with our customers and partners we will co-innovate and reinvent how businesses run in a digital world. SAP will accelerate growth in the cloud to more than €22 billion in 2025 and expand the share of more predictable revenue to approximately 85%.”
The company emphasized the impact the coronavirus pandemic has had on its performance, warning that some aspects of the business will likely not recover during 2020.
“SAP’s previous full year 2020 outlook issued on April 8, 2020, reflected its best estimates concerning the timing and pace of recovery from the COVID-19 crisis,” the company said. “This outlook assumed economies would reopen and population lockdowns would ease, leading to a gradually improving demand environment in the third and fourth quarters.
“While SAP continues to see robust interest in its solutions to drive digital transformation as customers look to emerge from the crisis with more resilience and agility, lockdowns have been recently re-introduced in some regions and demand recovery has been more muted than expected. Further and for the same reasons, SAP no longer anticipates a meaningful recovery in SAP Concur business travel-related revenues for the remainder of the year 2020.”
As a result of these factors, the company is focusing on the cloud and helping customers transition to it. In its mid-term guidance, the company is planning on €22 billion non-IFRS cloud revenue by 2025, a goal that reflects its new focus. At the same time, because of its focus on the cloud, the company expects traditional software licensing revenue to decrease as it moves forward.
SAP is just the latest company to pivot to the cloud. As the pandemic has changed how companies operate, the cloud has emerged as the single biggest factor in keeping companies and their employees operational.