Skip to content
    SAP
    Earnings call· Dec 2025(Q4 FY25)

    SAP SE SAP

    Jan 29, 2026 Source

    Executive summary

    SAP SE Q4 FY25 — Strong Cloud Performance and AI Integration Drive Growth

    SAP concluded FY25 with robust cloud performance and overachieved its profitability and cash flow targets, driven by strong execution and operational discipline. The company is strategically integrating AI across its product portfolio and internal operations, positioning it as a key differentiator for future growth. Management expressed confidence in accelerating total revenue growth and delivering record free cash flow in 2026, despite ongoing geopolitical uncertainties and a dynamic market environment.

    Highlights

    5

    • Cloud and software outlook achieved for FY25, despite a rough start to the year.

    • Operating profit and cash flow outlook overachieved for FY25, reflecting strong operational discipline.

    • Q4 FY25 saw the best bookings result of the year, with lower churn and stable discounts.

    • Total cloud backlog increased by 30% to EUR 77 billion, indicating strong future revenue visibility.

    • Non-IFRS basic earnings per share in FY25 increased by 36% to EUR 6.15.

    Concerns

    3

    • Current cloud backlog (CCB) growth of 25% was a more pronounced slowdown than anticipated, missing the guided 26%.

    • Geopolitical tensions led to longer negotiation times and deployment for complex sovereign SaaS solutions.

    • Software licenses revenue decreased by 27% in FY25.

    Guidance & targets

    5
    CategoryTargetConfidence
    Current Cloud Backlog (CCB) growth
    moderate slightly
    high materiality
    Medium
    Total Revenue Growth
    accelerate
    high materiality
    High
    Expense to Revenue Growth Ratio
    towards the lower end of 80% to 90%
    medium materiality
    High
    Free Cash Flow
    approximately EUR 10 billion
    high materiality
    High
    Midterm Non-IFRS Effective Tax Rate
    28% to 30%
    medium materiality
    High

    Segment performance

    5
    SegmentRevenueYoYQoQMargin
    Cloud
    Cloud revenue grew 26% year-on-year in 2025, primarily driven by the strong performance of the cloud ERP suite. This growth is 10 percentage points faster than peers on average.
    		EUR 15.3 billion26%——
    Cloud ERP Suite
    Cloud ERP suite reinforced its position as a key engine of growth, increasing by 32% in 2025. This accounts for 86% of total cloud revenue for the year. In USD terms, growth would be 34%.
    Percentage of total cloud revenue: 86%
    		—32%——
    Public Cloud Business
    The public cloud business was growing 5x faster than the private cloud business in 2025, indicating strong adoption of SAP's public cloud offerings.
    		—5x faster than private cloud——
    Mid-Market
    The mid-market is now the fastest-growing market within SAP's customer base, with several thousand net new customers joining.
    Net new customers: several thousand
    		—fastest-growing market——
    Software Licenses
    Software licenses revenue decreased by 27% in 2025, reflecting the ongoing shift to cloud subscriptions.
    		—-27%——

    Operational metrics

    10
    Non-IFRS Cloud Gross Margin
    75%up 1.6 percentage points YoY
    FY25

    Continued upward trend from last year, driving cloud gross profit up by 29%.

    Non-IFRS Operating Profit
    EUR 10.4 billionup 21% YoY
    FY25

    For the full year. Q4 non-IFRS operating profit was negatively impacted by approximately EUR 100 million related to a 2025 workforce transformation.

    IFRS Operating Profit
    EUR 9.8 billionup 27% YoY in Q4
    FY25

    For the full year. Q4 IFRS operating profit was negatively impacted by approximately EUR 100 million related to a 2025 workforce transformation and USD 200 million related to Teradata litigation expenses.

    Non-IFRS Effective Tax Rate
    30.4%below outlook of ~32%
    FY25

    Mainly resulting from an increased ability to offset foreign withholding taxes in Germany.

    Non-IFRS Basic Earnings Per Share
    EUR 6.15up 36% YoY
    FY25

    Reflects strong financial performance.

    Total Revenue
    EUR 37 billionup 11% YoY
    FY25

    Approached EUR 37 billion for the full year.

    Cloud Order Entry from Large Deals
    71%record
    Q4 FY25

    Deal volumes greater than EUR 5 million contributed a record 71% to cloud order entry in Q4.

    Business Data Cloud Order Entry
    over EUR 2 billion
    since launch

    Produced over EUR 2 billion of order entry since its launch in January, showing strategic relevance for data quality and semantic layer.

    Workforce Transformation Impact on Operating Profit
    EUR 100 millionnegative impact
    Q4 FY25

    Both IFRS and non-IFRS operating profit were negatively impacted by approximately EUR 100 million related to a 2025 workforce transformation.

    Teradata Litigation Expenses Impact on IFRS Operating Profit
    USD 200 millionnegative impact
    Q4 FY25

    IFRS operating profit growth was negatively impacted by USD 200 million related to Teradata litigation expenses.

    Industry KPIs

    9
    MetricValueDetails
    Revenue growthEUR 37 billionEUR
    Arr net new arr—
    Rpo current rpoEUR 77 billionEUR
    Bookings billingsBest bookings result
    Customer account countseveral thousandcustomers
    Large deal new logo metrics71%%
    Gross retention renewal ratelower than expected
    Operating FCF margin rule of 4075%%
    Ai product adoption monetization2/3deals

    Orderbook & backlog

    2
    Current Cloud Backlog (CCB)EUR 21 billion2025-12-31

    up 25%

    YoY growth. Slower than anticipated due to large deal mix with longer ramps, geopolitical tensions affecting sovereign SaaS, and procurement laws allowing termination for convenience.

    Total Cloud BacklogEUR 77 billion2025-12-31

    up 30%

    YoY growth. Contract duration is around 4 years, providing strong revenue visibility.

    Product announcements

    3
    ProductTypeDetails
    Jouleupdate
    AI Agentslaunch
    Business Data Cloud (BDC)milestone

    Deals & partnerships

    2
    H&MRetail transformation with AI-embedded solutions

    Closed a deal in Q4 FY25 to personalize shopping experiences, improve returns claims management, and optimize supply chain dynamics using SAP's AI-embedded applications. The deal was driven by AI's ability to transform transactional applications.

    Fresenius and AveliosDevelopment of next-generation patient management solution with AI

    Partnering with Fresenius and Avelios to code a new patient management solution on SAP's platform. This solution aims to make doctors and nurses more efficient, improve decision-making, and streamline hospital operations through AI agents, reducing manual work.

    Capital programs

    1
    Share Repurchase Programannouncedup to EUR 10 billion
    Funding: Free cash flow
    Start: February

    Benefit: Return capital to shareholders, support employee stock programs, and manage share count.

    New 2-year program scheduled to start in February. Reflects confidence in sustainable business strength and commitment to returning capital, supported by strong credit profile and recurring cash generation.

    Risks & headwinds

    4
    Geopolitical TensionsFY25, ongoing into FY26

    1 percentage point impact on CCB growth

    Mitigation: Offering sovereign Software-as-a-Service solutions, leveraging SAP's position as the largest non-U.S. software vendor, designing a stack not locked into any IaaS vendor, and developing SAP sovereign cloud infrastructure (SCI).

    Regulatory Complexity in EuropeOngoing

    Not quantified, but noted as a significant hindrance to speed and innovation.

    Mitigation: Advocating for digital union and harmonization of regulations in Europe to foster competitiveness and speed, especially for startups.

    Market Perception of Software Value in AI EraShort-term

    Share price dropped by 10% on call day

    Mitigation: Focusing on strategy and execution, emphasizing SAP's unique position with business data and process understanding for AI, and highlighting superior cloud growth rates compared to competitors.

    Workforce Skills Gap due to AIOngoing

    Not quantified, but noted as affecting 'every job'

    Mitigation: Doubling down on reskilling initiatives within SAP to prepare employees for new job profiles and skills required by AI, without implying headcount reduction.

    What to watch in Q1 FY26

    5

    Current Cloud Backlog (CCB) Growth

    next quarter
    Current25% (FY25)
    Targetmoderate slightly (FY26)

    Why it matters

    CCB is a key indicator of near-term revenue visibility and the pace of cloud adoption, especially after the FY25 slowdown.

    We expect CCB growth to moderate slightly over the course of 2026.

    Q&A highlights

    5

    Are there hurdles in the U.S. due to geopolitical tensions, similar to those faced by competitors, or is the U.S. environment more favorable?

    Christian Klein stated that the U.S. public sector was one of the best-performing businesses in Q4, with customers less concerned about the software's origin. The U.S. has a clear regulatory framework, allowing focus on business value and technology, unlike Europe's layered and inconsistent regulations.

    “No, actually, the U.S. public sector was one of the best-performing businesses in Q4, and that has completely changed. And those customers are actually less concerned around is the software coded in Europe or somewhere else. They have a clear regulatory framework, obviously, and it has high standards for very mission critical parts of the U.S. government, for example, and still standards for other businesses in regulated industries.”

    asked by Unknown Analyst · answered by Christian Klein (Executives)

    2 min read5 chapters

    Detailed Narrative

    01

    AI as a Core Growth Driver and Strategic Imperative

    SAP views AI not merely as a feature but as a fundamental component integrated across its applications and internal operations. The company emphasizes that its ERP and applications provide the essential business data and process understanding required for effective AI, differentiating it from LLM providers focused solely on unstructured data. SAP's strategy involves embedding AI agents into mission-critical business processes, enhancing user experience through Joule, and developing industry-specific AI capabilities, as demonstrated by deals with H&M and Fresenius.

    02

    Cloud Transformation Success and Market Share Gains

    The company highlighted the success of its cloud transformation initiatives, RISE and GROW with SAP, which have driven significant growth and market share gains. Public cloud business grew five times faster than private cloud in 2025, and cloud revenue tripled over the last year. SAP's cloud business revenue growth numbers of 26% in 2025 are, on average, 10 percentage points faster than peers, indicating strong competitive performance and market penetration.

    03

    Geopolitical Tensions and Regulatory Environment

    Geopolitical tensions impacted top-line performance in 2025, particularly affecting the current cloud backlog due to longer negotiations for sovereign SaaS solutions. Management noted a stark contrast in regulatory environments between the U.S. and Europe, with the U.S. offering clearer, more consistent frameworks. The complexity and layering of regulations in Europe are seen as a hindrance to speed and innovation, especially for startups and tech companies.

    04

    Capital Allocation and Share Repurchase Program

    SAP announced a new 2-year share repurchase program of up to EUR 10 billion, starting in February, reflecting confidence in the business's sustainable strength and commitment to returning capital to shareholders. This decision is supported by the company's strong credit profile and increasing free cash flow generation. While not ruling out M&A for technological reasons in the data and AI space, SAP prioritizes organic growth and views share buybacks as a benchmark for investment returns.

    05

    Workforce Transformation and Reskilling for AI

    SAP is actively pushing the use of AI internally, from R&D code generation to sales quoting and HR recruiting. The company acknowledges that AI will affect every job and emphasizes the importance of reskilling its workforce to adapt to new skill requirements. Management stated that this transformation does not imply a reduction in headcount but rather a change in job profiles, aiming to make employees fit for the next chapter of the company's evolution.

    AI-generated summary of the company’s earnings call. Not investment advice.