Respect must be earned

SAP's mishap

The figures for the second quarter are not bad. The Current Cloud Backlog exceeded 10 billion euros for the first time. More than 650 customers opted for S/4 Hana in the second quarter. The total number of S/4 Hana customers has thus increased by 15 percent to around 20,000 compared with the same period last year. Of these, over 14,500 have already gone live. In the second quarter, over 60 percent of the S/4 customers acquired were new customers. Revenues in the Qualtrics segment grew to 330 million euros. The continued strong growth was due to stable contract renewal rates and extensions.

Thus, results remain slightly below expectations, but this is to be expected given macroeconomic challenges such as Russia's invasion of Ukraine. The conference call would have been a good opportunity to reassure investors, analysts and customers, but CEO Christian Klein apparently had a bad day.

SAP vs. Cloud

The most burning topic was of course SAP's growth in the cloud and how this will develop. "This quarter again shows that our strategy is resonating, even in an increasingly challenging external environment"Luka Mucic, Chief Financial Officer of SAP, said. "We continued to deliver strong revenue growth, exceeding revenue expectations and increasing profitability in the cloud." During the first few questions on the topic, Christian Klein also still appeared confident: "Our cloud pipeline has increased - there is definitely stronger demand. [...] We are confident that our cloud growth will continue despite the macroeconomic challenges."

"I would welcome it if analysts could value our growth in the cloud a little more. “

Christian Klein, Chief Executive Officer, SAP

However, his mood seemed to deteriorate with each additional question on the subject. He seemed downright annoyed when asked about Qualtrics' business cycles: "Qualtrics is doing well. We have embedded Qualtrics in our solutions. Qualtrics has accelerated its growth. [...] We see a shift in priorities, but no delay in projects. Completion cycles are not lengthening."

Scott Russell, SAP's Head of Customer Success, who also participated in the conference call, still tried to put the CEO's answer in a better light: "We are not just moving workloads, we are improving capabilities. We are very clear about what capabilities need to be delivered via the cloud. It's not about extending completion cycles, it's about improving capabilities. SAP is strong in good times, but SAP is even stronger in bad times."

“In good times, SAP is strong, but in bad times, SAP is even stronger. “

Scott Russell, Head of Customer Success, SAP

The real mishap came with the penultimate question, which related to the medium-term forecast and an assessment of whether and when it would be revised again. This time, Christian Klein was audibly annoyed when he answered: "I would like to see analysts value our growth in the cloud a little more. We've always said it's a three-year transformation, and it was clear from the start that the first two years would be difficult."

Unjustified trouble

The overall impression left by Christian Klein in this conference call does not correspond to the image of an optimistic CEO that one usually gets at analyst conferences. The tone of the conference call could have been hopeful or placating. Instead, Klein sounded like a petulant child. His two fellow board members, Luka Mucic and Scott Russell, who kept the show up despite Klein, should be commended at this point; without them, things could have been much worse. Scott Russell's confident saying "SAP is strong in good times, but SAP is even stronger in bad times" obviously does not refer to the CEO.