SAP (SAP)

Business Overview

SAP is mid-transition from upfront licences to ratable cloud. FY2025 revenue under IFRS was €36.8B, up 7.7%. Gross margin was 72.9% and operating margin 26.1%, up from 13.6% in FY2024 when restructuring charges hit. Stock-based compensation was 4.6% of revenue. R&D was 18.0% and sales and marketing 24.1%.

Cloud revenue was €21.0B, up 23%, and 57.1% of total revenue. Licences fell to €1.0B (2.7%) from €1.4B. Support was €10.5B; cloud plus support was 85.7% of revenue. Free cash flow was €8.4B (22.9% of revenue); after stock pay the margin was 18.3%. Capex was 2.0% of revenue. Remaining performance obligations were €90.5B, with about 39% due within twelve months. Current cloud backlog (contracted cloud revenue due within 12 months) was €21.05B, up 16% from €18.08B. The FY2025 20-F does not disclose a numeric retention, churn or renewal rate.

How the Numbers Read

The mix shift is the story. Cloud is growing at 23% while licences shrink; total revenue grows only 7.7% because the licence and support base is still large. Operating margin recovering from 13.6% to 26.1% shows how much FY2024's restructuring weighed on the prior year. Revenue growth of 7.7% plus FCF margin of 22.9% sums to 30.6 before stock pay; after stock pay the sum is 26.0.

Current cloud backlog at €21.05B is SAP's measure of contracted cloud revenue for the next twelve months, distinct from the broader €90.5B RPO figure. About 39% of RPO is current. Without a filed retention rate, the transition has to be read from cloud growth, licence decline and backlog. The licence-to-cloud guide covers why revenue can dip when licence fall outruns cloud conversion.

How the Model Values This Kind of Company

For a licence-to-cloud transition, the race that matters is between licence and support falling away and cloud building from conversion. Cloud share, current cloud backlog and the conversion ratios decide whether total revenue dips while the mix improves.

Stock pay is still charged as a cost, and deferred revenue credits cash as cloud grows. Without a filed retention rate, durability of the cloud book is read from backlog and growth rather than a single retention input.

What to Watch in the Financials

Cloud share of revenue. 57.1% in FY2025 (+23% cloud growth). Cloud passed half of revenue in FY2024; its further rise is the transition's progress marker.

Licence revenue. €1.0B (2.7%) from €1.4B. Further declines are expected in a migration; the open question is the conversion ratio into cloud.

Current cloud backlog. €21.05B (+16%). This is the near-term contracted cloud book, beside the larger €90.5B RPO.

Operating margin versus FY2024. 26.1% against 13.6%. Separating restructuring from underlying mix is required before reading the margin path.

Key Risks

Transition timing. If licence and support fall faster than cloud conversion builds, total revenue can sit below the prior year for a stretch even while cloud grows.

No filed retention rate. Without churn or renewal disclosure, durability of the cloud book is inferred from backlog and growth rather than a single retention input.

Restructuring overhang. FY2024's 13.6% operating margin shows how charges can dominate a year; another wave would again obscure the mix story.

Currency and IFRS presentation. Figures are in euros under IFRS; comparing euro growth and margins directly to US-dollar GAAP peers without care mixes reporting bases.