SAP reported Monday fiscal first-quarter results that surpassed predictions on both the top and bottom lines.

However, SAP's NYSE-listed shares increased by 2.7% in premarket trading on Tuesday. For the three months ending on March 31, SAP announced adjusted earnings of €0.81 per share, falling short of the consensus estimate of €1.06 per share. Revenue totaled €8.04 billion, also lower than the €8.63 billion expected by analysts. Notably, cloud revenue surged by 24% to €3.93 billion in Q1 compared to the previous year.

Despite an increase in cloud revenue, the company's weaker results were observed when it started implementing its transformation program and investing more in the business AI opportunity.

Analysts at Citi Research, however, believe that the report showcases a stellar performance that surpasses all expectations. SAP had a good update for the first quarter, showing ongoing business growth and positive comments about future acceleration, according to Citi analysts. Higher costs for restructuring and stock-based compensation in 2024 compared to strong free cash flow performance could lead to slight adjustments to 2024 forecasts.

The company confirmed its forecast for 2024, predicting cloud revenue between €17.0B and €17.3B and adjusted operating income between €7.6B and €7.9B. SAP declared a dividend of €2.20 per share for fiscal year 2023, up 7% compared to the regular dividend paid for fiscal year 2022. Citi stated that they believe the update meets high expectations and anticipate that shares will trade accordingly.

UBS analysts have reiterated their buy rating on SAP, stating that the expectations for Q1 were already quite high. SAP has exceeded them by growing its cloud backlog, achieving high gross margins, and generating strong free cash flow.