Trade war scorches German software giant! SAP (SAP.US) Q3 cloud business revenue "hits the brakes" with growth at nearly two-year low.

German software giant SAP SE (SAP.US) reported third-quarter cloud revenue below analysts' expectations, indicating that trade disputes and economic weakness are putting pressure on its sales. According to a statement released by the company based in Walldorf, Germany on Wednesday, adjusted third-quarter cloud revenue was 5.29 billion euros (approximately 6.1 billion US dollars), below market expectations of 5.33 billion euros, with a growth rate of 22% year-on-year, but the slowest since the fourth quarter of 2023. Total revenue increased by 7% to 9.08 billion euros (approximately 10.59 billion US dollars), also falling short of analysts' expectations of 9.17 billion euros. Operating profit under non-IFRS standards increased by 14% to 2.57 billion euros, slightly higher than the expected 2.55 billion euros. Free cash flow for dividend distribution to investors increased by 5% to 1.27 billion euros. Investors have been closely watching the sales progress of SAP's cloud business since CEO Christian Klein began driving the company's strategic transformation from traditional software licensing deployed on local servers to subscription services. In the previous quarter, SAP management had warned that global trade frictions and a weaker US dollar could affect customer investment decisions. CFO Dominik Asam commented in the financial report that despite the "uncertainty in the macroeconomic environment," the company has maintained its business growth momentum. Following the financial report, SAP's American Depositary Receipts (ADR) fell by about 6% in after-hours trading. However, the company's stock price on the Frankfurt Stock Exchange has not fluctuated significantly this year. SAP also updated its revenue outlook for cloud businesses in 2025. Assuming exchange rates remain unchanged, revenue is expected to be close to the lower end of the previous range of 21.6 to 21.9 billion euros. At the lower end of the range, revenue will achieve a 26% growth. Additionally, SAP expects adjusted profits to be at the upper end of the previously forecasted range of 10.3 to 10.6 billion euros. Free cash flow is expected to reach 8 to 8.2 billion euros, above the previous expectation. Analyst team TD Cowen, including Derrick Wood, in a report before the financial report, pointed out that some SAP transactions in the third quarter were delayed due to "tariff turbulence, especially affecting the manufacturing customer group." Wood also mentioned that analysis of US government activities showed a slight decrease in SAP's third-quarter order volume, with government spending cuts impacting the business.