20-F: SAP SE Reports Strong 2025 Financials Driven by Cloud Growth

SAP SE delivered robust financial performance in 2025, exceeding profitability and free cash flow expectations, fueled by strong cloud revenue growth and strategic AI investments, despite a deceleration in current cloud backlog growth and a decline in customer loyalty.

Summary

• Total revenue increased by 8% to €36,800 million in 2025, primarily driven by the cloud business.
• Cloud and software revenue grew by 9% to €32,538 million, representing 88% of total revenue.
• Cloud revenue surged by 23% to €21,023 million, with Cloud ERP Suite revenue growing 28% to €18,119 million.
• Current cloud backlog increased by 16% to €21.05 billion, while total cloud backlog rose 22% to €77.29 billion.
• Non-IFRS operating profit saw a strong increase of 31% at constant currencies, reaching €10.66 billion, exceeding the revised guidance range.
• Free cash flow significantly improved by 95% to €8.24 billion, attributed to higher profitability and lower restructuring and share-based compensation payments.
• The IFRS effective tax rate was 28.7% in 2025, down from 33.9% in 2024, mainly due to changes in withholding taxes.
• Customer Net Promoter Score (NPS) decreased by three points year over year to 9, falling below the target range of 12 to 16.
• The Business Health Culture Index (BHCI) increased by 1 percentage point to 81%, meeting the midpoint of its target range.
• The Employee Engagement Index (EEI) rose by 2 percentage points to 76%, also hitting the midpoint of its target range.
• Total gross greenhouse gas emissions decreased to 6.3 megatonnes (Mt) in 2025, aligning with the guidance for a steady decrease.
• The company completed a share repurchase program with an aggregate volume of up to €5 billion on August 13, 2025.
• SAP acquired SmartRecruiters, a talent acquisition software provider, on September 11, 2025, to strengthen its HR offerings.
• A provision of €387 million was recorded related to the Teradata litigation, reflecting the best estimate of outflows after an appellate ruling reinstated the case.

Sentiment

Score: 8

Explanation: StockSavvy.ai views this as a strong report, with excellent financial performance in profitability and cash flow, driven by strategic cloud and AI initiatives. While customer loyalty metrics and cloud backlog growth showed some softness, the overall financial strength and positive outlook for AI-driven transformation are highly encouraging.

Positives

• Total revenue increased by 8% to €36,800 million, driven by cloud business expansion.
• Cloud revenue grew by 23% to €21,023 million, with Cloud ERP Suite revenue up 28% to €18,119 million.
• Non-IFRS operating profit increased by 31% at constant currencies to €10.66 billion, surpassing the upper end of guidance.
• Free cash flow saw a substantial 95% increase to €8.24 billion, significantly exceeding expectations.
• The company-wide restructuring program, announced in January 2024, concluded as planned in early 2025, leading to lower restructuring expenses.
• Employee Engagement Index and Business Health Culture Index both improved and met their target ranges, indicating a healthy work environment and engaged workforce.
• Gross greenhouse gas emissions decreased to 6.3 Mt, demonstrating progress towards net-zero targets.
• The acquisition of SmartRecruiters strengthens SAP's HR offerings and is expected to create synergies and cross-selling opportunities.
• SAP Business AI is gaining momentum, with over two-thirds of cloud order entry containing SAP Business AI in Q4 2025.

Negatives

• Customer Net Promoter Score (NPS) decreased by three points to 9, falling below the target range of 12 to 16.
• Current cloud backlog growth decelerated more than anticipated, increasing by 25% at constant currencies, compared to 29% in 2024.
• Software licenses and software support revenue decreased by 9% to €11,515 million, in line with the cloud transformation but indicating a decline in traditional revenue streams.
• A provision of €387 million was recorded for the Teradata litigation, negatively impacting operating profit.
• Other taxes increased by €98 million due to a change in case law, negatively affecting operating profit in Q3 2025.
• IaaS cloud revenue declined by 36% to €345 million, reflecting a strategic shift but a reduction in this specific cloud segment.

Risks

• Uncertainty in the global economy and financial markets, and social and political instability caused by state-based conflicts, terrorist attacks, civil unrest, war, or international hostilities could disrupt business.
• Exposure to numerous and often conflicting international laws and regulations, including tax laws, trade sanctions, and cybersecurity/ESG compliance, could lead to significant costs or penalties.
• Claims and lawsuits for intellectual property infringements or breaches of contract, or inability to obtain/maintain adequate licenses for third-party technology, may result in adverse outcomes.
• Non-compliance with increasingly complex data protection and privacy laws could lead to civil liabilities, fines, and loss of customers.
• Risks related to unethical behavior and non-compliance with policies by employees, partners, or third parties could result in civil/criminal charges, fines, or reputational damage.
• Sales and implementation of SAP software and services are subject to significant risks, including insufficient customer information, inadequate contracting, and unrenderable services.
• Failure to scale, maintain, and enhance an effective partner ecosystem could hinder revenue growth and market adoption.
• Inability to properly protect and safeguard critical information, assets, cloud offerings, and infrastructure against cyberattacks, insufficient infrastructure, disruption, or deficient performance.
• Technology and products may experience undetected defects, coding/configuration errors, may not integrate as expected, or may not meet customer expectations.
• Market share and profit could decline due to increased competition, market consolidation, technological innovation, and new business models in the software industry.
• Ineffective or unsuccessful acquisition, integration, or divestiture of companies or their components.
• Inability to keep pace with rapid technological and product innovations, enhancements, new business models, and changing market expectations, particularly concerning AI.
• AI algorithms or training methodologies may be flawed, data sets biased, or AI-generated content offensive/illegal, leading to competitive harm, regulatory action, legal liability, and reputational damage.
• Uncertainty surrounding intellectual property and privacy laws applied to AI technology, potentially leading to disputes or legal violations.
• Dependence on the decarbonization efforts of suppliers and changes in SBTi standards for achieving net-zero targets.
• Uncertainty if the high energy needs of AI and cloud infrastructure can be fully covered with renewable energy.

Future Outlook

SAP anticipates continued economic growth in 2026 and beyond, particularly in emerging markets and driven by AI investments. The global IT market is expected to shift towards AI infrastructure modernization and outcome-based investment strategies, with a rise in enterprise agents. SAP aims to accelerate total revenue growth through 2027, primarily driven by cloud revenue and Cloud ERP Suite. Total operating expenses are projected to grow at 80% to 90% of total revenue growth in 2027, supported by declining expense ratios and efficiency gains from internal AI deployment. Software support revenue is expected to decline faster as customers transition to the cloud. For 2026, SAP forecasts cloud revenue between €25.8 billion and €26.2 billion, cloud and software revenue between €36.3 billion and €36.8 billion, and non-IFRS operating profit between €11.9 billion and €12.3 billion (all at constant currencies). Free cash flow is expected to be approximately €10 billion, and the non-IFRS effective tax rate around 29%. The Cloud CSAT target is 75% to 76%, BHCI 80% to 82%, and EEI 74% to 78%. Gross greenhouse gas emissions are expected to steadily decrease to 3.6 Mt (based on updated methodology).

Management Comments

• "Despite a greater-than-expected deceleration of the cloud backlog growth rate to 25% at constant currencies, total cloud backlog performed strongly, increasing 30% at constant currencies to 77 billion, partially due to large transformational deals with high cloud revenue ramps in outer years."
• "At the same time, we see SAP Business AI gaining momentum, with more than two-thirds of our cloud order entry containing SAP Business AI in the fourth quarter of 2025 and therefore increasing more than 20pp compared to the third quarter of 2025."
• "This performance demonstrates the underlying momentum of our business, as well as our potential for the future."
• "Our ability to drive top line growth while exceeding our profitability and free cash flow expectations reflects the consistent execution against the outlook we provided at the beginning of the year."
• "While the macroeconomic challenges persisted, we took deliberate steps to reinforce our foundation and align the business for durable, sustainable performance."
• "Overall, the course of business in the reporting year was favorable."

Industry Context

StockSavvy.ai notes that SAP's 2025 performance aligns with broader IT market trends, where accelerating investments in AI-enabled transformation and cloud adoption are key drivers. The shift towards AI-powered ERP applications and integrated, scalable cloud platforms, as highlighted by IDC, directly supports SAP's 'AI-First, Suite-First' strategy. The increasing demand for sovereign cloud solutions, particularly in Europe, also plays into SAP's strengths, reinforcing its position as a strategic partner for regulated industries. While the market is transitioning from experimentation to value realization in AI, SAP's embedded AI approach within core business workflows positions it favorably against competitors who may struggle to integrate AI effectively at scale.

Comparison to Industry Standards

• SAP's cloud revenue growth of 23% (26% at constant currencies) demonstrates strong performance in a competitive cloud market, comparable to leading cloud providers who are also experiencing significant growth in enterprise cloud adoption.
• The deceleration in current cloud backlog growth to 25% at constant currencies, while still strong, suggests a slight moderation compared to some hyper-growth SaaS companies, but remains robust for a company of SAP's scale.
• The increase in non-IFRS operating profit by 31% at constant currencies indicates strong operational efficiency and profitability, potentially outperforming some peers still heavily investing in cloud infrastructure and AI development.
• The significant 95% increase in free cash flow to €8.24 billion positions SAP favorably in terms of liquidity and financial health, allowing for continued strategic investments and shareholder returns, a metric often scrutinized by investors comparing against companies like Oracle or Salesforce.
• The decline in Customer NPS to 9, below the target range, suggests a need for improvement in customer experience, an area where competitors like Salesforce (known for strong customer relationships) often set high benchmarks.
• SAP's R&D ratio of 18.0% reflects a sustained commitment to innovation, comparable to other major enterprise software companies like Microsoft or Adobe, who also invest heavily in new technologies like AI.

Management Changes

Corporate Governance

Legal Proceedings

• Teradata Litigation: Teradata Corporation filed a civil lawsuit against SAP in U.S. federal court in 2018, alleging trade secret misappropriation and U.S. antitrust violations concerning SAP HANA. While initially dismissed, a 2024 appellate ruling reinstated the case, and the U.S. Supreme Court declined review in October 2025. SAP has recorded a provision of €387 million as of December 31, 2025, and will vigorously defend itself at the jury trial scheduled for March to April 2026.
• Celonis Lawsuits: Celonis SE sent letters to SAP with various concerns and allegations in 2023 and 2024. In early 2025, SAP filed a negative declaratory judgment action in Germany. In March 2025, Celonis filed a U.S. federal court lawsuit alleging antitrust and competition law violations related to SAP's Signavio products and data access policies. Celonis withdrew a preliminary injunction request in June 2025, but amended its complaint in October 2025, allowing additional claims. SAP filed patent counterclaims in November 2025. The U.S. trial is scheduled for March 8, 2027. Celonis is seeking approximately US$70 million (€60 million) in damages in the U.S. antitrust case. Both companies have initiated several patent cases in the U.S. and Germany. SAP is also in dialogue with the German Federal Cartel Office regarding a Celonis complaint.
• European Commission Competition Law Proceedings: In September 2025, the EC started formal proceedings concerning SAP's on-premise maintenance and support policies. SAP suggested remedies, which were market tested in 2025 and are pending final EC approval in 2026. These remedies are not expected to have a material impact on future financial performance.

Related Party Transactions

• SAP has relationships with joint ventures and associates, buying and selling products and services on arms-length terms.
• Certain Supervisory Board members hold positions of significant responsibility with other entities with which SAP has ordinary course of business relationships, involving buying and selling products, assets, and services on arms-length terms.
• Executive Board members occasionally obtain services from SAP, paying consideration consistent with arms-length terms.
• All amounts related to these transactions were immaterial to SAP in all periods presented.
• In 2023, SAP granted a loan of €5,000 within the SAP-Flex Loan program to an employee who later joined the Supervisory Board as an employee representative in 2024.

Stakeholder Impact

• Shareholders: Benefit from strong financial performance, increased operating profit, and significant free cash flow, leading to a proposed higher dividend of €2.50 per share and a new €10 billion share repurchase program. However, the decline in Customer NPS and deceleration in cloud backlog growth could be a concern for long-term value.
• Employees: Positively impacted by the conclusion of the restructuring program, improved Employee Engagement Index (76%), and Business Health Culture Index (81%). The acquisition of SmartRecruiters expands HR offerings, potentially creating new opportunities. The workforce optimization program in July 2025 resulted in termination benefits for some employees.
• Customers: Benefit from SAP's 'AI-First, Suite-First' strategy, new AI capabilities (Joule, Joule Agents), and integrated cloud solutions. However, the decrease in Customer NPS indicates areas for improvement in customer satisfaction. The European Commission's investigation into on-premise maintenance policies and related remedies could impact some customers.
• Suppliers/Partners: The expansion of SAP's partner ecosystem and co-innovation efforts are positive. However, the net-zero target is dependent on the decarbonization efforts of suppliers, potentially requiring them to adapt.
• Creditors: Strong financial profile, high debt capacity, and long-term credit ratings (A+ by S&P, A1 by Moody's) provide confidence. Quick repayment of financial debt and robust free cash flow enhance creditworthiness.

Next Steps

• Deploy Joule as the new AI user experience for every user in 2026.
• Embed agentic AI into end-to-end business processes to deliver value through AI assistants in 2026.
• Codevelop with customers to create next-generation AI-powered industry applications in 2026.
• Establish SAP Business Data Cloud as the foundational data layer for AI in 2026.
• Scale adoption through RISE with SAP and SAP GROW offerings in 2026.
• Revise customer experience KPI framework from Customer NPS to Cloud Customer Satisfaction (Cloud CSAT) starting in 2026.
• Revise methodology for calculating Scope 3 GHG emissions in 2026, leading to re-baselining.
• Modernized, tiered services and support engagement model (Foundational, Advanced, Max Success Plans) to be brought to market in early 2026.
• Proposed dividend of €2.50 per share for 2025, subject to shareholder approval at the Annual General Meeting in May 2026.
• New share repurchase program of up to €10 billion to commence in February 2026 and expected to be completed by the end of 2027.
• Teradata litigation jury trial scheduled for March to April 2026.
• European Commission's market testing of suggested remedies for on-premise maintenance and support policies pending final EC approval in 2026.
• Celonis U.S. antitrust case trial currently scheduled to begin on March 8, 2027.
• Renovation of headquarters building (WDF01) in Walldorf to be completed in Q3 2027.
• New office building in Bangalore for approx. 5,000 employees to be completed in Q3 2028.
• Relocation and interior office build-out in Tokyo for approx. 650 employees to be completed in Q1 2027.

Key Dates

Recommendation

SAP's 2025 results demonstrate exceptional financial strength, with non-IFRS operating profit and free cash flow significantly exceeding guidance. The company's strategic pivot to 'AI-First, Suite-First' is gaining traction, as evidenced by the strong momentum in Business AI cloud order entry. While the deceleration in current cloud backlog growth and a dip in Customer NPS warrant attention, these are overshadowed by the robust top-line growth in cloud revenue and impressive profitability improvements. The new €10 billion share repurchase program signals strong confidence in future cash generation and commitment to shareholder returns. The ongoing legal challenges and macroeconomic uncertainties are noted, but SAP's proactive measures in compliance, cybersecurity, and sustainability, coupled with its market leadership in enterprise software, position it for continued long-term growth and value creation. This filing reinforces a 'strong buy' recommendation for long-term investors.

Keywords

Cloud ERP, Business AI, Software as a Service (SaaS), Digital Transformation, Enterprise Software, Financial Performance, SEC Filing, Share Repurchase, Cybersecurity, Data Protection, Sustainability, Talent Acquisition, SAP HANA, SAP Business Technology Platform, SAP Business Data Cloud, Joule, SmartRecruiters, Teradata Litigation