Can SAP SE's (ETR:SAP) Weak Financials Pull The Plug On The Stock's Current Momentum On Its Share Price?

SAP SE (ETR:SAP), the German software giant, has been on a remarkable run over the past couple of years, with its stock price gaining 230% since late 2022 and 75% in 2024 alone. However, the company's recent financial performance has raised concerns about the sustainability of this momentum. In 2024, SAP SE's revenue grew by 9.51% compared to the previous year, reaching 34.18 billion. However, earnings decreased by -49.11% to 3.12 billion. This mixed performance has led some analysts to question whether the stock's current rally can continue.



One of the primary drivers behind SAP SE's weak financials is its revenue misses. In October 2024, the company missed revenue expectations, and in April 2024, both revenue and earnings fell short of estimates. These misses indicate that SAP SE's top-line growth has been sluggish, which directly impacts its financial performance. Additionally, the company's earnings have been declining, with a significant drop of -49.11% in 2024 compared to the previous year. This decline suggests that SAP SE's profitability has been negatively affected, potentially due to increased costs or lower margins.

Another factor contributing to SAP SE's weak financials is the global economic environment and geopolitical situations. Germany's SAP sees a growing global demand for software to manage and document companies' sustainability efforts despite a trend of weakening climate protection targets in the United States, its chief executive officer said in January 2025. However, market conditions can impact SAP's business, and the company must navigate these challenges to maintain its financial performance.

Despite these concerns, SAP SE's financials might evolve in the near future due to several factors. The company's cloud revenue growth has been strong, with a 27% year-over-year increase in the fourth quarter of 2024. This growth indicates that SAP SE's shift towards cloud-based solutions is gaining traction and could help offset any declines in traditional software licensing revenue. Additionally, SAP SE is integrating AI into its solutions, which could drive further adoption and growth. For example, the company's partnership with Databricks enables customers to unify all their data by combining their SAP data with the rest of their enterprise data, making it easier to leverage AI for business applications.



Furthermore, SAP SE is expanding its presence in the Asia Pacific region through partnerships like the one with LG CNS. This expansion could open up new revenue streams and drive growth in the near future. The company is also working on improving its operational efficiency, as seen in its efforts to streamline its finance department and reduce back-office functions. These improvements could lead to cost savings and improved profitability.

In conclusion, SAP SE's weak financials in 2024 were driven by revenue misses, earnings declines, and market conditions. However, the company's focus on cloud revenue growth, AI integration, expansion into new markets, and improved operational efficiency could help drive a turnaround in its financial performance in the near future. Investors should closely monitor SAP SE's financial performance and analyst opinions to determine whether the stock's current momentum can be sustained.