German software giant SAP SE ADS (NYSE:SAP) stock tumbled Thursday after the company reported mixed fourth-quarter fiscal 2025 results.
Revenue rose 3% Y/Y (+9% Y/Y in constant currencies) to 9.68 billion euros, while non-IFRS EPS increased 16% Y/Y to 1.62 euros.
In USD, SAP reported quarterly earnings of $1.89 per share, which beat the analyst estimate of $1.76 and revenue of $11.27 billion, which missed the Street estimate of $11.46 billion.
IFRS operating profit grew 27% Y/Y, non-IFRS operating profit up 16% Y/Y, and up 21% Y/Y at constant currencies.
Operating cash flow stood at 1.30 billion euros, and free cash flow came in at 1.03 billion euros in the quarter.
Segment Performance
The current cloud backlog stood at 21.05 billion euros, up 16% Y/Y and up 25% Y/Y in constant currencies, led by major transformational contracts, featuring significant cloud revenue growth in later years and legally mandated termination-for-convenience clauses.
“Large transformational deals with high cloud revenue ramps in outer years and termination for convenience clauses required by law negatively impacted fourth quarter constant currency current cloud backlog growth by approximately 1 percentage point,” the company said.
In the earnings call, SAP CFO Dominik Asam said the current cloud backlog rose 25%, but acknowledged the pace represents a sharper-than-expected slowdown versus both internal expectations and prior guidance for only a slight deceleration.
“This is a more pronounced slowdown than what we had anticipated and more than the slight deceleration we guided to at the beginning of last year,” Asam said.
Asam attributed the weaker growth primarily to a shift in deal mix toward larger digital transformation projects that carry longer ramp-up periods or more flexible commercial structures, which dampen near-term backlog contribution.
He also said rising geopolitical tensions are pushing more customers to prioritize sovereign SaaS solutions, adding complexity and length to deal negotiations and deployments.
While SAP continues to see a strong pipeline in sovereign cloud, Asam noted these deals take longer to close and ramp than standard U.S. infrastructure-based offerings, particularly for government, defense, and sensitive commercial sectors, a dynamic that is now increasingly weighing on near-term backlog growth.
Also, cloud revenue up 19% Y/Y and up 26% Y/Y in constant currencies to 5.61 billion euros. Cloud ERP Suite revenue also increased 23% and up 30% at constant currencies.
As of December 31, total cloud backlog increased 22% Y/Y (+30% Y/Y at constant currencies) to 77.29 billion euros.
SAP’s Executive Board and Supervisory Board have approved a new share buyback program of up to 10 billion euros, which is set to begin in February 2026 and conclude by the end of 2027.
Outlook
SAP expects 2026 cloud revenue of 25.8 billion–26.2 billion euros, total cloud and software revenue of 36.3 billion–36.8 billion euros, operating profit of 11.9 billion–12.3 billion euros, and free cash flow of around 10 billion euros.
Also, the company projects constant-currency revenue growth to accelerate through 2027, with a faster decline in constant-currency software support revenue in the coming years, due to accelerated customer migration to the cloud.
Management Commentary
Christian Klein, CEO, stated, “The significant Current Cloud Backlog growth in Q4 has laid a strong foundation for accelerating Total Revenue growth through 2027. SAP Business AI has become a main driver for growth as it was included in two thirds of our Q4 cloud order entry, combined with strong AI adoption across the ERP Suite.”
Asam added, “We closed 2025 on a high note, delivering strong operating profit and free cash flow ahead of our expectations. This performance reflects focused execution, financial discipline, and the continued trust our customers place in us as the North Star for their digital transformation.”
SAP Price Action: SAP shares were down 14.88% at $200.98 during premarket trading on Thursday. The stock is trading at a new 52-week low, according to Benzinga Pro data.
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