Growth in the cloud business, increased revenue, and a rise in operating profit – SAP presented its third-quarter results after the US market closed on Wednesday, and market observers seemed to breathe a sigh of relief. Particularly, after SAP had to revise down annual cloud revenue expectations following its second-quarter report. This time, there were no such worrisome updates, leading to a more than 5% surge in SAP's stock during a substantial portion of the Xetra trading session.

However, not everything in Walldorf is rosy. While revenues in the crucial cloud business increased to 3.47 billion euros, analysts had expected around 3.52 billion euros. Nevertheless, the adjusted operating profit, which rose by 10% to 2.28 billion euros, exceeded analysts' expectations. The increased free cash flow of €865 million, which was also well-received by the market, was partly due to reduced capital expenditure.

While the market response may suggest exceptional figures, these metrics are more accurately described as "solid" by analysts. Overall, they are satisfactory. CFO Dominik Asam, who took on the role in the spring, seems to have instilled confidence in investors with classic CFO strategies like emphasizing "cost discipline," which contributed to the significantly improved operating income. Asam also expresses the desire for "a balanced mix of growth and profitability", a strategy that appears to be working.

The predominance of positive sentiment is likely because SAP is well on its way to leaving behind a central problem of recent years. For a long time, the strategic shift towards more predictable cloud revenue came at the expense of margins. CEO Christian Klein now regularly highlights that SAP has entered the "next phase" of its transformation, including rising margins.

Investors have rewarded this approach, with SAP's stock gaining more than 30% in value since the beginning of the year. Additional support comes from Deutsche Börse, which is once again considering raising the maximum weight of a DAX stock from 10% to 15%. Currently, SAP is the only DAX stock exceeding the 10% threshold and would benefit from this change.

Nonetheless, the major challenge for SAP currently lies in the fourth quarter. The range for currency-adjusted cloud revenues, which was reduced by 200 million euros in July, spans from 14.0 to 14.2 billion euros. SAP must achieve the goal to maintain the trust it has built. The fourth quarter is traditionally strong for the software company, but it needs a stellar performance. To achieve the target, SAP, according to its own statements, needs currency-adjusted growth rates of 23 to 24%. With a 22% growth rate after three quarters of the fiscal year, the Walldorf-based firm is slightly below their target. Achieving only the lower end of the target range, especially after the correction made in the summer, would not send a positive signal. SAP, therefore, still needs a strong year-end performance.