SAP Downgraded by Citizens on Slowing Cloud Growth

Key Downgrade Details

Citizens has downgraded SAP from Market Outperform to Market Perform. The decision follows the company's fourth-quarter financial report, which revealed weaker-than-expected top-line results and indicated a slowdown in cloud business momentum extending into 2026.

Q4 Financial Performance Overview

SAP reported non-IFRS earnings per share of €1.62 and an operating profit of €2.83 billion, both surpassing consensus estimates. However, total revenue reached €9.68 billion, falling short of the €9.75 billion forecast. Cloud revenue also missed expectations at €5.61 billion. Critically, current cloud backlog growth decelerated to 25% at constant currency, marking its slowest pace in nine quarters and missing analyst projections.

Impact on Market Expectations

The revenue miss and slowing cloud backlog are significant concerns for investors. This performance signals potential challenges in SAP's primary growth engine. The downgrade reflects analysts' revised, more cautious outlook on the company's ability to maintain its previously high growth trajectory in the competitive cloud market.

Summary and Future Outlook

The slowdown in cloud backlog growth is a key metric that will be closely watched by the market. SAP's future performance will heavily depend on its ability to re-accelerate cloud adoption and meet its revised guidance. Investors will be monitoring upcoming quarters for signs of stabilization or further deceleration in this critical business segment.

FAQ

Q: Why did Citizens downgrade SAP stock?
A: Citizens downgraded SAP due to its fourth-quarter revenue miss and a significant slowdown in its cloud backlog growth, which fell to a 25% rate, the slowest in over two years.

Q: Did SAP meet its Q4 earnings expectations?
A: While SAP's non-IFRS EPS and operating profit beat consensus, its total revenue and cloud-specific revenue failed to meet market forecasts.

Source: Investing.com