SAP SE ADS (NYSE: SAP) Q2 2025 Earnings | 07/23/2025

SAP SE ADS reported strong Q2 2025 financial results, with significant growth in cloud revenue and operating profit. Despite ongoing global market uncertainties, the company expressed confidence in its pipeline for the second half of the year, driven by product innovation, business AI, and strategic partnerships.

Q2 2025 Financial Highlights

• Cloud Revenue: Rose 28% year-over-year, an increase of two percentage points compared to Q1. The cloud ERP suite continued to be a strong driver, growing over 30% for 14 consecutive quarters.

• Total Revenue Growth: Accelerated to 12%.

• Current Cloud Backlog: Grew 28% to €18 billion, despite currency headwinds.

• Operating Profit: Surged 35%, reflecting strong business model and cost base improvements from the transformation program and internal AI adoption.

• Software Licenses Revenue: Decreased by 13%, consistent with the shift to cloud.

• Predictable Revenue: Increased to 86% of total revenue.

• Cloud Gross Margin: Expanded by 1.8 percentage points to 75.2%, leading to a 31% increase in cloud gross profit.

• Non-IFRS Operating Profit: Up 35% to €2.6 billion, benefiting from cloud revenue growth, expanding cloud gross margin, and a significant reduction in share-based compensation expenses (€331 million reduction in H1 2025).

• Operating Cash Flow: Up 71% to €2.6 billion.

• Free Cash Flow: Increased 83% to €2.4 billion, driven by higher profitability and working capital improvements.

• Earnings Per Share (Non-IFRS): Increased to €1.50.

Key Business & Customer Highlights

• Alibaba Partnership: Strategic partnership to roll out SAP Business Suite end-to-end at Alibaba and for Alibaba to become a partner for SAP's "rising growth journeys" in China, targeting both installed base and new customers.

• New Customer Wins: Included GSK, Balmain, Weplay, Gartner White, eGym, Nepco, and MCH, showcasing a wide range of solutions from cloud ERP to HR and finance.

• Solution Areas: Nearly 300 cloud customers selected digital supply chain solutions (e.g., Delta, BMW), 100 customers selected customer engagement platforms (e.g., BMW), and over 300 signed up for human capital management solutions (e.g., German Federal Pension Insurance, L'Oréal).

• Sovereignty Cloud Offering: German defense company Hensoldt and British defense and security leader BAE Systems adopted SAP's sovereignty cloud. SAP emphasizes its unique ability to offer sovereignty over the entire stack (infrastructure to application) and additional features like EU access and "bring your own key."

• SAP Business Data Cloud (BDC): Skyrocketing pipeline, included in deals with GSK, Replay, BAE Systems, and NAPCO. Adobe also selected the new data offering, and partnership with Palantir is deepening. BDC is expected to be a multi-billion euro business in a few years, leveraging SAP's installed base.

Innovation & Business AI

• AI Adoption: Over half of cloud order entry volume in Q2 included AI use cases.

• AI Agents: Released first 14 AI agents in H1, with a goal to reach 40 by year-end, working across business functions (e.g., Commerce Cloud agent for online shoppers, agents for financial planning, supply chain, HR, and development).

• Joule: SAP's AI copilot will be available across SAP and non-SAP systems in Q3 (via WalkMe integration) and will provide answers to everything in Q4 (powered by Perplexity partnership).

• Data Products: Released over 100 pre-built SAP managed data products; expecting to more than double that by year-end, covering the entire business suite.

• Internal AI Use Cases: SAP uses AI internally to boost productivity, decoupling expense growth from revenue growth. Examples include digital sales engagement (up to 50% productivity increase), HR ticket resolution (up to 20% less time), and developer efficiency (up to 30% more efficient).

Outlook

• 2025 Outlook: Unchanged across all metrics, despite market uncertainty.

• Second Half 2025: SAP is well-prepared, with a strong pipeline and focus on disciplined execution, cost control, and protecting the bottom line and free cash flow.

• Long-term Outlook: SAP expects to further decouple expense growth from accelerated total revenue growth in the coming years, driven by economies of scale in cloud, continued AI-driven productivity, and ongoing workforce optimization.