SAP (SAP.US) Q3 revenue exceeds 10 billion mark for the first time; full-year cloud business revenue expected to reach the high end of the guidance range.

German software giant SAP SE (SAP.US) achieved a milestone in the third quarter, with quarterly revenue exceeding 10 billion for the first time, as cloud business growth beat expectations, indicating that the artificial intelligence (AI) boom has not weakened market demand for its products. The company also expects full-year cloud business revenue to reach the high end of its previous guidance range. As of press time, SAP shares rose more than 2% in after-hours trading on Wednesday. The earnings report showed that SAP's third-quarter revenue grew 13% year-over-year to 10.27 billion, marking the first time quarterly revenue has exceeded 10 billion. On profitability, non-IFRS operating profit was 3.03 billion, up 18% year-over-year, exceeding 3 billion in a single quarter for the first time; the non-IFRS operating margin was 29.5%, up 1.2 percentage points year-over-year. IFRS basic earnings per share were 1.96, up 14% year-over-year; non-IFRS basic earnings per share were 1.89, up 19% year-over-year, above the analyst consensus of approximately 1.83. Free cash flow grew 36% to 1.72 billion. Third-quarter cloud business revenue grew 26% to 6.67 billion, better than the analyst consensus of 6.57 billion. SAP said cloud revenue growth was driven by customers resuming investment after emerging from "financial distress." At constant currency, SAP's cloud backlog grew 26% to 24.14 billion, above UBS Group AG's prior forecast of a 24% to 25% increase. SAP's backlog is seen as an important indicator of global enterprise technology spending, as the company's software suite provides accounting and payroll management services for many large enterprises worldwide. SAP develops enterprise-grade software used to manage finance, human resources and other core business functions. In recent years, SAP has been encouraging customers to move from legacy software systems installed on local servers to the cloud. Most of SAP's revenue now comes from remote-access services. The company plans to end mainstream support for legacy products next year, after which the cost of maintaining traditional services will rise. SAP now expects 2026 subscription revenue where customers rent the right to use software remotely rather than buying and running it themselves to reach the upper end of its expected range of 25.8 billion to 26.2 billion, corresponding to year-over-year growth of 23% to 25%. Including the declining legacy software license business, SAP expects full-year revenue of 36.3 billion to 36.8 billion, up 12% to 13% year-over-year. SAP maintained its full-year operating profit guidance unchanged at 11.8 billion to 12.2 billion at constant currency. SAP Chief Executive Officer Christian Klein called it "an outstanding quarter." He said customers are "investing in the technology that underpins their AI strategy." New cloud customers included Astrazeneca PLC Sponsored ADR, Infineon and Henkel. SAP shares have rebounded after a broad software selloff earlier this year sparked by market concerns that powerful new AI tools would replace traditional applications. Christian Klein is pushing the Walldorf, Germany-based company to reorganize around AI. After customers were slow to adopt SAP's AI tools and criticized their cost-effectiveness, Christian Klein took direct responsibility for developing the new technology. He has said AI will be key to the company's future growth. TD Cowen analyst Derrick Wood and others said in a report before the results that adoption of SAP's AI tools is "progressing better than many other enterprise AI products, but is still not the main DRIVE of order growth at present."