Strong full year cloud growth for SAP as it announces fintech gambit with Taulia acquisition

By Stuart Lauchlan

January 28, 2022

Audio mode

Christian Klein

SAP’s full-year 2021 financial results saw a 5% increase in revenue to €24, 410 billion. Cloud revenue rose 19% year-on-year to €9.592 billion. Operating profit dropped by 30% to €4.659 billion, driven down in part by higher compensation expenses related to the divestiture of Qualtrics.

It was to the cloud growth that CEO Christian Klein turned in the post-results announcement analyst call:

We have seen four quarters of fantastic acceleration in Current Cloud backlog, which grew 26% in Q4, a sequential acceleration of four percentage points. This has led to Current Cloud backlog now standing at nearly €9.5 billion. Cloud revenue also accelerated strongly, up 24% in Q4 and up from 20% in Q3

This was supported by S/4HANA cloud revenue, which grew an impressive 61% in Q4, the highest growth we have ever reported. Current Cloud backlog for S/4HANA grew a stellar 76%, driven by tremendous adoption of RISE with SAP, our signature offering for business transformation in the cloud.

RISE with SAP added more than 650 new clients in Q4 to bring the total customer base to 1300. New signings include Adobe, Panasonic Corporation, International Business Machines, Mahindra & Mahindra, Fresenius SE, Allianz Technology and Samsung SDS. Klein noted:

Since we launched RISE with SAP in January 2021, we have seen significant increases in customer adoption each quarter. In Q4, we more than doubled the number of new RISE deals over Q3 with about 3x the number of deals over €5 million…CVS, one of the leading health solution companies is using RISE to support their journey to the cloud and make healthcare more affordable and more widely available. Panasonic has chosen RISE with SAP to drive a digital transformation effort, which will replace several legacy ERP systems to provide excellent customer value, optimize supply chains and improve operational capabilities. Another example, Standard Chartered Bank has chosen RISE with SAP to expedite their finance transformation across 60 markets and to achieve their commitment to net-zero emissions by 2030.

He added:

Clearly, RISE is a blockbuster success in the market. And we are just getting started. Our massive on-premise installed base of more than 30,000 ERP customers presents a significant opportunity for our RISE with SAP offering as these customers begin their transformation to the cloud. At the same time, RISE attracts many new customers. It comes with a significant cross-sell opportunity because of the integrated nature of our modular cloud ERP. For every dollar spent on the core ERP we have an up-sell opportunity of $3 for our platform and for additional line of business solutions.

Meanwhile S/4HANA adoption added 1300 new logos in Q4, 50% of them net new clients to end the year on 18,800 customers. Klein said:

Our success with RISE led to create S/4HANA momentum. We now have nearly 5,000 S/4HANA cloud customers and our win rate against competitors in Q4 was more than 70%…Novartis, one of the largest pharma companies in the world, chose SAP S/4HANA to standardize and consolidate their core ERP platform.

Fintech

Alongside its results, SAP also announced its intention to acquire Taulia, a fintech company focused on working capital management and supply chain finance. More than 80% of its customer base is made up of SAP ERP customers. Klein explained:

We expect them to be a great addition to our business network and procurement portfolio. Our customers will be able to finance billions of transactions with favorable terms and improve their cash flow. Taulia is already a strong SAP partner with a number of joint customers such as Airbus, Nissan and AstraZeneca.

This follows the news earlier in the week that SAP is investing in Icertis, which offers contract intelligence management powered by AI. According to Klein:

Icertis is a great and seamless complement to our portfolio, having multiple touch points to SAP systems from ERP to procurement to sales and to HR. This partnership underscores the strength of our ecosystem and the massive opportunity from joining forces with market leading software players.

My take

Solid progress on the cloud journey and more to come in 2022. According to CFO Luka Mucic:

Entering 2022, we are now moving into the next leg of our cloud transformation and are approaching an inflection point. We expect to move into double-digit growth territory in 2023 first, for operating profit, closely followed by total revenue and our growth should accelerate further beyond that. At the same time, we become ever more resilient. Our share of more predictable revenue should expand to approximately 85% or more than €30 billion in absolute terms by 2025.

Mucic added:

In 2021, we observed a strong growth in the total contract value of new cloud deals, far beyond what can be seen in the already impressive search of our current cloud backlog. Next to a sharp increase in demand for our cloud products, this was driven by two additional factors: first, slightly increasing contract durations and second and more importantly, more pronounced DRAMs, which means contracts stepping up in volume over the course of their initial term. We anticipate that both of those factors will help us defy the law of declining growth rates for a while and continue to accelerate our cloud growth even beyond 2022.