VALUATION HIGHLIGHTS

1. Cloud subscriptions constitute 58% of the Trefis price estimate for SAP's stock.
2. Software Support constitutes 34% of the Trefis price estimate for SAP's stock.

WHAT HAS CHANGED?

SAP Stock Performance

SAP stock has seen strong gains of 90% from levels of $120 in early January 2021 to around $230 in mid-November 2024, vs. an increase of about 60% for the S&P 500 over this roughly four-year period.

However, the increase in SAP stock has been far from consistent. Returns for the stock were 9% in 2021, -24% in 2022, and 52% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 — indicating that SAP underperformed the S&P in 2021 and 2022.

Latest Earnings

SAP posted a better-than-expected set of Q3 2024 results. Revenue rose to €8.47 billion, up 9.8% from last year, while earnings came in at €1.23 per share. The company saw its cloud backlog rise 29% to €15.4 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 $14.8 billion in 2023 to almost $25 billion by 2030. However, if the metric grows faster, and rises to over $30 billion by 2030, there could be a 10% upside to our price estimate. On the other side, if revenues only grow to about $20 billion by 2030, there could be a downside of about 10% 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 efficiently and process data, better manage customer and supplier relationships, and shorten product lead time to 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 2023, cloud revenues rose at an annual rate of about 18%, compared to SAP's other divisions which have seen sales remain flat or decline. For perspective, SAP's total revenue expanded by about 3% over the last four 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.