By Sarah Sloat and Christopher Alessi
FRANKFURT--Business software provider SAP SE raised its earnings outlook Tuesday after the expanding takeup of its cloud-based business lifted fourth-quarter results, the latest sign that Chief Executive Bill McDermott's push to focus the company on its internet offering is paying off.
Net profit for the three months ended Dec. 31 rose 18% to EUR1.51 billion ($1.62 billion) from EUR1.28 billion a year earlier. Revenue rose 6% to EUR6.72 billion.
Fourth-quarter net profit under non-international financial reporting standards was EUR1.82 billion, beating analysts' forecasts of EUR1.67 billion in a poll by The Wall Street Journal. In light of the increase, SAP will raise its 2016 dividend from the EUR1.15 paid per share it paid for 2015. A decision on the payout is due in February, Chief Financial Officer Luka Mucic said.
New cloud bookings were up 40% in the fourth quarter while cloud subscriptions and support revenue grew 31%. The cloud backlog of unbooked but committed orders, which signals the company's future revenue performance, was healthy, Mr. McDermott said.
"We come into 2017 with enormous momentum," the CEO said.
SAPs transition to the cloud had initially squeezed profitability because cloud revenue is spread out over longer contract periods, rather than being based on lucrative one-off licensing fees. On Tuesday SAP confirmed it still expected cloud subscriptions and support revenue to overtake its software license revenue by 2018.
The company slightly raised the lower end of its non-IFRS operating profit forecast range. It now expects EUR6.8 billion-EUR7 billion this year and EUR8.5 billion-EUR9 billion in 2020.
UBS analysts said the revised guidance had been expected, based in part on the bank's survey of IT spending plans that showed good demand trends for SAP and software spending growth of 2.5% this year.
Still, SAP shares were flat at EUR82.88 at midday. "The market got too bullish on potential upgrades," UBS said.
Mr. McDermott said recent world events such as the U.K. vote to leave the European Union and U.S. elections helped rather than harmed SAP's business.
"Geopolitical issues play right to our strength," he said. "Brexit and other macro geopolitical shifts--all of them help SAP because whoever is looking at this equation...is going to need digital transformation."
Company executives said Tuesday that the U.K. was one of the fastest-growing markets for SAP following the Brexit vote, and that Mexico was strong in the fourth quarter, "with all the U.S. election turmoil."
In recent years as part of SAP's move into the cloud, Mr. McDermott, an American, has presided over a series of acquisitions of cloud-focused enterprises, including the 2014 purchase of U.S.-based travel and expense management software provider Concur Technologies for $8.3 billion.
Shortly afterward SAP presented a redesign of its core Business Suite software--including management applications for finance, logistics, commerce and inventory management--to operate on its HANA real-time database, either on hardware, in the cloud or as part of a hybrid solution.
Write to Sarah Sloat at email@example.com and Christopher Alessi at firstname.lastname@example.org