SAP maintains its restraint in augmenting its annual objectives for the year
In a significant move towards digital innovation, SAP, the German software maker, embarked on a major restructuring program in early 2024. The transformation involved the reduction of around 8,000 to 10,000 jobs and restructuring costs of approximately €2 billion, with the aim of making the company leaner and more agile by focusing on AI-driven cloud and digital services [1][2].
The restructuring initially incurred substantial costs and workforce reductions, which likely pressured short-term earnings in 2024. However, by Q2 2025, SAP showed strong performance improvements. The company reported a significant 24% year-over-year increase in cloud revenue, cloud backlog growth by 28% at constant currency, a non-IFRS operating profit rising 35% to €2.6 billion, and IFRS operating profit more than doubling to €2.46 billion in Q2 2025 compared to Q2 2024 [3][4]. Furthermore, SAP's free cash flow in Q2 2025 rose 83% to €2.36 billion, aided by lower restructuring expenses and operational efficiencies.
For full-year 2025, SAP set ambitious financial targets reflecting the benefits of restructuring and AI investments. The company projected cloud revenue at €21.6-21.9 billion (26-28% growth from 2024), non-IFRS operating profit forecasted at €10.3-10.6 billion (26-30% growth), and expected €0.5 billion efficiency gains directly contributing to profitability from the restructuring effort [1].
Despite these positive developments, SAP's shares fell today as a result of the reported earnings and targets [5]. Some investors had expected no increase in full-year targets, and the report from SAP for the second quarter had a somewhat sour tone due to the underperformance of the future cloud business [6]. However, SAP maintained its full-year targets, citing "elevated levels of uncertainty and reduced visibility" [7].
The uncertainty is slowing decision-making among US customers, and Deutsche Bank analysts noted that the reiterated targets left a margin for error due to uncertainty surrounding Washington's tariffs [8]. Finance chief Dominik Asam said SAP remains cautiously optimistic about the second half of the year [9]. The old licensing business of SAP is still contributing to the results, and the 2024 restructuring program concluded by SAP in the first quarter contributed to the boost in operating profit [10].
In summary, although the 2024 restructuring temporarily affected short-term earnings, it laid the foundation for robust growth and improved margins by 2025. The strategic shift to cloud and AI business models, enabled by the restructuring, allowed SAP to significantly exceed prior earnings performance and set higher full-year targets for 2025 [1][3][4].
The restructuring program, instigated in 2024, initially impacted SAP's short-term earnings due to substantial costs and workforce reductions. However, as a result of the restructuring, SAP's focus on AI-driven cloud and digital services in the business sector led to significant improvements in performance and financial targets.
