VALUATION HIGHLIGHTS
- Cloud subscriptions constitute 72% of the Trefis price estimate for SAP's stock.
- Software Support constitutes 23% of the Trefis price estimate for SAP's stock.
WHAT HAS CHANGED?
SAP Stock Performance In Recent Years
The changes in SAP stock over the recent years have been far from consistent. Returns for the stock were 9% in 2021, -24% in 2022, 52% in 2023, and 61% in 2024.
In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, 24% in 2023, and 23% in 2024 — indicating that SAP underperformed the S&P in 2021 and 2022.
Latest Earnings
SAP posted a better-than-expected set of Q4 2024 results. Revenue rose to €9.38 billion, up 11% year-over-year, while earnings came in at €1.36 per share. The company saw its cloud backlog rise 32% to €18 billion.
POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE
Below are key drivers of SAP's value that present opportunities for upside or downside to the current Trefis price estimate for SAP:
Cloud Subscriptions
- Cloud subscriptions and support revenue : Cloud subscriptions are currently the biggest driver of SAP's value. We project that cloud-related revenue will rise from around $18.6 billion in 2024 to over $50 billion by the end of our review period. However, if the metric grows slower than anticipated, and rises to only $40 billion by 2031, there could be a 15% downside to our price estimate.
For additional details, select a driver above or select a division from the interactive Trefis split for SAP at the top of the page.
BUSINESS SUMMARY
SAP makes money by selling software applications to businesses worldwide. Companies use SAP software to integrate and process data efficiently, better manage customer and supplier relationships, and shorten product lead time in the market through product management software. SAP key software offerings include Enterprise Resource Planning software, Customer Relationship Management Software (CRM), and supply chain management (SCM)
SOURCES OF VALUE
The cloud segment is SAP's most valuable segment for the following reasons:
Cloud Subscription Revenue Growth:
Cloud Subscription and Support represent the fastest-growing segment for SAP. Between 2019 and 2024, cloud revenues rose at an annual rate of about 19%, compared to SAP's other divisions which have seen sales remain flat or decline. For perspective, SAP's total revenue expanded at 4% average annual rate over the last five years.
KEY TRENDS
Software-as-a-Service (SaaS)
SAP has been increasingly moving to a cloud-based model. The cloud transition should enable the company to have a larger mix of recurring sales, giving it a more predictable revenue stream. Moreover, SAP is also betting that the transition should help it increase its wallet share with customers, as the cloud-based model effectively bundles the software with the back-end IT infrastructure and operational services, which businesses typically had to maintain with the on-premise models.
