SAP Stock Drops Following Disappointing Cloud Backlog and Outlook

SAP Unveils €10 Billion Share Buyback as Cloud Growth Misses Expectations

SAP has announced plans to initiate a share repurchase program valued at up to €10 billion, set to begin in February and conclude by the end of 2027.

The German enterprise software giant saw its stock tumble after its latest cloud backlog and revenue projections fell short of investor hopes. SAP, known for its Concur travel and expense platform, reported a 25% year-over-year increase in its current cloud backlog for the fourth quarter, reaching €21.05 billion (approximately $25.17 billion) at constant currencies. This figure narrowly missed market expectations of 26% growth, as some revenue from major contracts is now anticipated to be recognized in future years, reducing this year’s growth by about one percentage point.

Key Headlines from The Wall Street Journal

Looking ahead, SAP forecasts cloud revenue growth between 23% and 25% for the coming year, projecting a range of €25.8 billion to €26.2 billion. Analysts had anticipated a slightly higher growth window of 24% to 26%.

Shares listed in Frankfurt dropped over 15% on Thursday, extending a decline of more than 37% over the past year. Recent months have seen investors question the potential impact of advanced AI language models on the demand for SAP’s software and services.

CEO Christian Klein remains optimistic, stating in an interview that investor confidence should recover this year. He emphasized that AI could enhance SAP’s offerings if software providers leverage these technologies to better interpret client data and context.

Despite the mixed results, Citi analysts noted that while SAP’s fourth-quarter performance may not fully meet high expectations, the company’s core business remains strong.

SAP anticipates that revenue growth will accelerate through 2027 as more customers transition from traditional software support to cloud-based solutions.

On a non-IFRS basis, SAP reported total revenue of €36.80 billion for 2025, marking an 11% increase at constant currencies. Fourth-quarter revenue rose 9% to €9.68 billion, with cloud sales jumping 26% to €5.61 billion.

Analyst consensus had predicted quarterly revenue of €9.70 billion and cloud revenue of €5.60 billion, according to SAP’s non-IFRS figures.

The company highlighted robust cloud performance in markets such as Canada, Brazil, Germany, India, Italy, Spain, the UK, and South Korea during the quarter.

Strategic Shifts and Financial Highlights

In recent years, SAP has steadily shifted away from selling software licenses, focusing instead on subscription-based cloud services—a trend the company expects to persist.

The newly announced share buyback program is set to launch in February and run through 2027, totaling up to €10 billion.

SAP’s operating profit, a key metric for software firms, rose to €2.83 billion from €2.44 billion, resulting in an operating margin of 29.2%. Analysts had projected an operating profit of nearly €2.74 billion and a margin of 28.2% based on non-IFRS consensus.

Like many European software companies, SAP reports both IFRS and non-IFRS results. While IFRS aligns with international accounting standards, investors and analysts often focus on non-IFRS numbers, which exclude restructuring and acquisition-related expenses.

For 2026, SAP expects non-IFRS operating profit to fall between €11.9 billion and €12.3 billion, with free cash flow projected at around €10 billion.

More Top Stories from The Wall Street Journal