SAP - Update 08/20/2026 - ISIN DE0007164600

00:00:07: There are headlines that're simply too good to be true.

00:00:12: Profit doubled is one of them, the number even correct and yet it only tells half.

00:00:37: That sounds like a picture book year for shareholders.

00:00:40: And on top of that, the stock has just exploded!

00:01:01: Which means this gain equals as reported in Wirtschaftswoche.

00:01:28: For those hearing us for the first time, I'm talking to Warren Wise an AI technology that analyzes like a value investor.

00:01:36: Exactly!

00:01:37: I'm a synthetic stakeholder.

00:01:39: My thinking and my voice are

00:01:41: AI.".

00:01:42: Today's basis, my report on SAPs' twenty-twenty five annual report published on February twenty sixth, twenty twenty six assessed by the methodology of Graham Buffett & Munger And wherever necessary i also looked into the annual reports of previous years.

00:02:03: SAP sits in almost every German portfolio and many ETFs.

00:02:07: When the headlines promise a doubling but our model sees warning lights blinking, then I want to know what's behind it?

00:02:13: Before we start... What is the score concretely?

00:02:16: Four out of

00:02:17: five.

00:02:18: And Is that good or

00:02:19: bad?!

00:02:20: I'd have gotten that wrong myself.

00:02:22: Good!

00:02:22: Four is our green zone Investable But under observation.

00:02:26: In three of eight categories We even award The full mark.

00:02:30: In which ones?

00:02:31: Earning power growth quality and financial resilience.

00:02:35: Their SAP isn't just good, it's outstanding.

00:02:39: not a single category falls below of

00:02:41: four.".

00:02:42: So where is the problem?

00:02:43: The five in the overall verdict goes to whoever leaves no open questions.

00:02:47: SAP leaves three.

00:02:49: those are what we're talking about today.

00:02:51: Understood then let's start with what's already very good...

00:02:54: And that's a lot!

00:03:02: No knockout criteria, no liquidity worries.

00:03:04: Nothing!

00:03:05: We're talking about a machine that prints money but one with blind spots.

00:03:09: But first the engine The business model And I'll explain it to you without a single piece of jargon.

00:03:15: Okay SAP makes software for companies.

00:03:17: That much?

00:03:18: i do know.

00:03:19: True It's just this very word is misleading.

00:03:23: Software sounds like something you install

00:03:25: and can uninstall again...

00:03:27: ...and thats exactly what u cant do here.

00:03:29: Picture SAP instead as the plumbing system of a giant skyscraper.

00:03:34: Oh, nice image!

00:03:35: Through those pipes flow finance supply chains HR purchasing and SAP doesn't just deliver the water.

00:03:43: SAP is built firmly into the walls

00:03:45: The famous moat.

00:03:47: Exactly.

00:03:48: you can decide on a Friday evening to switch your system.

00:03:51: It would be like ripping every pipe out of the walls while the water is still running.

00:03:55: Remember this image.

00:03:56: we'll need it again later.

00:03:58: And this bet is paying off right now, isn't it Warren?

00:04:02: Yes Corey.

00:04:03: Because the customers can't run away.

00:04:05: It used to be a product license sold money collected once done.

00:04:10: today The world is called the cloud rent.

00:04:13: instead of buy every month again and Again

00:04:16: A long-term subscription basically like a gym membership

00:04:20: a subscription and you see it in one number that brings tears Of joy to any CFO quiz.

00:04:26: What percentage of its revenue does SAP already know on January?

00:04:29: first?

00:04:30: Secure, planable contractual.

00:04:32: Hmm... half sixty percent?

00:04:34: Eighty-six.

00:04:35: Eighty

00:04:36: six?!

00:04:36: That's enormous!

00:04:37: Merely nine tenths of the income locked in before year has even started?

00:04:41: Long term subscription and maintenance contracts that is what I call predictable revenue.

00:04:47: And shift into cloud is real.

00:04:49: The Cloud Suite grows by twenty eight per cent to over eighteen billion.

00:04:54: Wait At the same time, the old licenses crash by twenty-nine percent.

00:04:58: In any other industry that would trigger panic wouldn't it?

00:05:01: It

00:05:01: would.

00:05:02: here its deliberate cannibalism SAP is pushing its customers out of the old one off licences and into the subscription model

00:05:09: And it pays off gross margin.

00:05:10: seventy two point nine percent end up every euro operating profit.

00:05:15: almost eighty four cents arrive as real cash flow.

00:05:19: with that we're at a single most important point.

00:05:22: Is a profit just an accounting entry or does it land as real money in the account?

00:05:27: At SAP, its real-money.

00:05:29: Free cash flow is eight point two billion up ninety five percent plus three point three billion net cash rating A plus It barely gets better.

00:05:39: Okay um then there's one thing I don't get Money printing machine operating profit of one hundred and six percent.

00:05:47: Where on earth is the catch?

00:05:48: This is exactly where the analyst marketing ends and the substance check begins.

00:05:53: Those one hundred six percent on EBIT that's earnings before interest in taxes, The number everyone looks at are misleading.

00:06:01: And the first of our two mechanisms Is responsible!

00:06:04: ...and THAT ONE IS CALLED...

00:06:06: The basement effect.

00:06:08: In twenty-twenty four SAP cleaned house massively.

00:06:11: three point one billion euros in restructuring costs, severance re-organizations the whole program.

00:06:18: That pushed the prior year profit down into the basement.

00:06:21: and when you start from the basement The ground floor looks like a moon landing

00:06:26: Exactly!

00:06:27: And now pay attention this is important...the doubling is real..The reported operating profit did infact rise From four point six to nine point six billion.

00:06:37: that's not made up.

00:06:38: So where's the problem?

00:06:40: It's just not what people take it for.

00:06:42: Strip out the noise and look at real improvement in ongoing business.

00:06:46: What do you think is left?

00:06:48: Four point four percentage points of better margin

00:06:50: From doubled to four-point-four points, that's sobering.

00:06:54: Though...to be fair, four point four points a single year is excellent.

00:06:59: It proves cloud model scales.

00:07:01: But doubling measures half how bad prior years was Not good this one

00:07:07: And that was Mechanism One.

00:07:08: That was Mechanism One.

00:07:10: Remember it, the second comes at end.

00:07:13: and its more uncomfortable one because doesn't just concern SAP It concerns your entire portfolio statement.

00:07:20: And now to the biggest claim SAP makes about itself Not About The Past Year... About Next Ten.

00:07:27: Oh PR's favorite subject!

00:07:33: Quick word on our own behalf since fits right here.

00:07:36: Exactly this kind of uncompromising deep analysis is behind every Warren Wise report.

00:07:43: If you sit on a board or supervisory board, Or run investor relations and want an even more detailed deep dive for your own company, warren-wise.com.

00:07:54: So back to SAP

00:08:03: SAP's AI Assistant that carries out tasks in the system on command, plus thirty new jewel agents.

00:08:10: Sovereign AI for regulated industries.

00:08:12: Believe The Story and SAP is rebuilding the brain of world economy right

00:08:17: now.".

00:08:18: And this exactly where the biggest gap between story & numbers opens up to me because AI IS EXPENSIVE.

00:08:25: Insanely expensive!

00:08:27: If AI really is priority one what should happen to research spending?

00:08:31: It should rise dramatically, and now it gets interesting.

00:08:34: The research ratio has fallen from nineteen point one to eighteen points.

00:08:38: oh percent of revenue.

00:08:40: Wait Fallen while they're telling the big AI story everywhere?

00:08:44: And here I have to be precise because this often gets reported wrong... ...the research budget didn't shrink!

00:08:50: It grew From six-point five two six point six billion euros Just by one point eight percent While Revenue rose seven point seven percent.

00:08:58: So it grew but slower than the company.

00:09:01: Exactly, and if percentages feel too abstract for this technology that supposedly changes everything SAP increased its research headcount by three hundred seventy-five people worldwide.

00:09:13: Three seventy five an increase of one percent.

00:09:16: And now comes the point where I didn't stop.

00:09:18: at a single year SAP actually publishes a chart on this.

00:09:21: The headline our investments in innovation

00:09:25: Sounds like a success chart.

00:09:27: It is two At first glance five bars, and each is higher than the one before.

00:09:33: The research budget rises every year.

00:09:35: The line above it says in effect look our commitment shows in the

00:09:40: spending.".

00:09:40: And at second glance?

00:09:42: In that same chart there's a line.

00:09:44: It shows how strongly the budget grew each time... ...and That Line Is Falling.

00:09:48: By How Much?

00:09:49: In twenty-twenty One Research Grew by Eighteen Percent.

00:09:53: Twenty Twenty Two by Fifteen Twenty Twenty Three Four Twenty Twenty Four three, and in twenty-twenty five it's one point eight.

00:10:02: Eighteen fifteen four Three Barely two

00:10:06: Four years of slowdown in a row In a chart that is meant to prove commitment.

00:10:11: Hold on The big break between twenty-two and twenty-three From fifteen To four.

00:10:18: And what happened between Twenty-twenty Two and Twenty-Twenty Three?

00:10:21: The whole world discovered generative AI

00:10:24: Exactly there.

00:10:25: the growth doesn't have It quarters.

00:10:28: And in the annual report for that very year, is this statement they want to become number one business AI word-for-word?

00:10:36: The ambition and break of the same document.

00:10:39: To be fair...and it matters!

00:10:41: The budget keeps rising every year.

00:10:44: The chart's headline isn't a lie but the trend SAP presents as proofs commitment Is a four years slowdown.

00:10:51: I'm not claiming anything here.

00:10:53: i am reading out whats on their own chart.

00:10:55: It's like a Formula One team announcing, aerodynamics is everything from now on and then letting the wind tunnel budget grow a little slower four years running.

00:11:05: Pretty much.

00:11:06: But maybe they suddenly program twice as fast thanks to AI.

00:11:10: That's actually the second possible explanation And it would be The Holy Grail.

00:11:23: They're simply investing too little to hold the lead.

00:11:26: And which is true, Warren?

00:11:28: We don't know!

00:11:29: The annual report leaves us in the dark.

00:11:31: No hard monetization metrics for the AI agents.

00:11:34: How many customers pay a premium?

00:11:36: What share of revenue as genuine AI software... no figures

00:11:40: For the company's most important story.

00:11:43: That's pretty thin

00:11:44: Very thin.

00:11:45: Let's hold onto that.

00:11:46: The narrative is loud The evidence is missing.

00:11:49: It's not enough for a points deduction in our model yet.

00:11:52: it is strategic tension, Not a false statement But its the question I'd ask the board first.

00:11:58: Next area of tension The customers That cloud transition working.

00:12:03: You can read off single number Remember the eighty six percent?

00:12:06: The planable revenue What SAP already knows on January.

00:12:10: First

00:12:11: that was snapshot.

00:12:12: one year Now we look at reserve years after SAP has signed contracts for which not a single invoice has yet been written.

00:12:21: Service, Not Delivered Money, Not Received Revenue, Not Booked But Signed is Signed.

00:12:28: So ordered future?

00:12:30: Exactly!

00:12:30: The technical term is Total Cloud Backlog.

00:12:34: And now guess One year's revenue is thirty six point eight billion.

00:12:39: How big is this reserve?

00:12:41: Um fifty billion?

00:12:42: Seventy seven two

00:12:44: So more than two years of revenue already locked in?

00:12:47: Though important, so no wrong picture forms.

00:12:50: It's spread over several years – it is not revenue that comes on top next year…it's the reservoir that coming-years draw from

00:12:58: A dream...on paper.

00:13:00: And thats exactly where The Catch Is!

00:13:02: A Reservoir is only worth as much as gets renewed at end of subscription.

00:13:06: and now comes a number that gives me pause As an investor..the net promoter score a widely used metric for how likely it is that customers will recommend.

00:13:41: Industry figures circulate for such values, but they're barely comparable.

00:13:45: Different customer base different survey different question.

00:13:48: So I compare against the only benchmark that truly binds

00:13:52: The one CPSET for itself.

00:13:54: Twelve to sixteen published before the year began.

00:13:57: anything else would be guessing.

00:13:59: and still i want To Be Fair.

00:14:01: a nine means there are Still more advocates than critics

00:14:05: right?

00:14:05: And That's an important difference.

00:14:07: these aren't angry customers.

00:14:09: But now the look back is worth it, because the single number alone tells you nothing.

00:14:13: I pulled this series from older annual reports.

00:14:16: In twenty-twenty two The value stood at seven.

00:14:19: in twenty-Twenty three At nine SAP explicitly reported that as a success.

00:14:24: Back then saying customers were increasingly satisfied.

00:14:29: In twenty-twenty four it jumped to twelve, three points up on target celebrated again and now comes the part that counts.

00:14:37: The reason SAP itself gave for it.

00:14:40: And That Reason was?

00:14:42: Growing satisfaction with cloud solutions Word For Word!

00:14:45: The very transformation we've been talking about in this whole episode is... In Twenty-Twenty Four… The Reason For The Rise

00:14:54: Back At Nine.

00:14:55: Back at nine….

00:14:56: The entire gain from prior year given back in a single year, back to the twenty-twenty three level.

00:15:03: While The Cloud migration was in full swing.

00:15:06: That's the point!

00:15:07: The explanation from Back Then is the diagnosis of today.

00:15:11: And again...to be fair In twenty twenty four…the target range was nine to thirteen

00:15:16: Right?

00:15:17: With a nine SAP would have been on target.

00:15:20: Back then They raised the bar themselves after their success To twelve to sixteen.

00:15:26: Part of this miss is self-imposed ambition.

00:15:29: You have to acknowledge that, but the direction remains minus three points.

00:15:34: in The year the transformation was hardest.

00:15:37: and how bad?

00:15:37: Is That?

00:15:38: now comes the real finding.

00:15:40: last Year SAP hit or beat every single financial target revenue profit cash flow cloud growth all on plan Or above

00:15:49: everything

00:15:50: Everything.

00:15:50: they missed exactly one single metric And it's the one.

00:15:53: that's about the customers.

00:15:55: That's a picture.

00:16:16: Why are the customers reacting so cautiously?

00:16:19: Because SAP is pulling them out of their tailored systems and into.

00:16:25: Suddenly the companies have to adapt their processes to software, not other way around.

00:16:30: That's uncomfortable!

00:16:31: And of all things a subscription company that lives off renewals can least afford that…

00:16:37: and now you remember the pipes in the walls...that is why this dissatisfaction.

00:16:42: nowhere in revenue.

00:16:43: The customers simply cannot leave quickly – it only gets presented four years later when the contract expires.

00:16:53: Seventy-seven billion is great, but it's an assumption about the behavior of customers whose satisfaction just dropped three points.

00:17:01: And management itself is signaling a slight slowdown.

00:17:04: in order growth for twenty-twenty

00:17:06: six.".

00:17:06: Then finally the question that has been nagging me the whole time — if SAP produces so much money and part of it apparently isn't going into research where does it flow?

00:17:16: Two ways, and you already know the first.

00:17:19: Ten billion euros in share buybacks for twenty-twenty six and twenty-Twenty seven.

00:17:24: But you can't save your way to top of AI market with buybacks Can You?

00:17:28: No Buybacks reward today's shareholders.

00:17:32: They don't secure a future.

00:17:34: And The Second Way

00:17:35: A shopping spree Most recently smart recruiters For seven hundred fifty three million times.

00:17:41: Before that Walk Me before that.

00:17:42: Linux.

00:17:43: Four acquisitions In Twenty four months.

00:17:46: And how much of the growth now comes from acquisitions?

00:17:49: and, How Much From Its Own Strength?

00:17:51: That's The Right Question.

00:18:16: Since closing in September, minus twenty-one million euros in earnings contribution.

00:18:21: Minus at a seven hundred and fifty three million purchase price?

00:18:24: That's normal for fresh acquisitions.

00:18:27: integration costs write downs I'm not holding the number against them.

00:18:31: i'm only pointing out that we have not a single indication of when it supposed to turn into a plus.

00:18:36: And there was also something about a red cluster

00:18:39: Exactly.

00:18:40: In stage three of our review, the search for systematic warning patterns.

00:18:44: a cluster called Goodwill lights up.

00:18:47: Explain the mechanism to us quick and painless.

00:18:50: SAPI buys a company for let's say a billion but it only owns buildings servers and patents worth two hundred million.

00:18:58: what happens to the remaining eight-hundred?

00:19:00: They land as good will on The Balance Sheet.

00:19:03: so at heart paid for hope.

00:19:06: future synergies

00:19:07: with smart recruiters.

00:19:08: that was five hundred twenty-three of seven hundred and fifty three million.

00:19:12: And in total this Goodwill makes up sixty four point four percent of SAP's entire equity, twenty nine billion

00:19:20: euros.".

00:19:20: Twenty

00:19:21: nine billion?

00:19:22: Of

00:19:22: hope?!

00:19:23: Okay but hold on...SAP is a software company.

00:19:26: there's barely any machinery isn't high good will.

00:19:29: normal they're.

00:19:30: it is!

00:19:31: There has been no write down so far.

00:19:34: That not a faux pas.

00:19:35: The faux pas from the view of a strict value investor is what's missing afterward.

00:19:40: Namely?

00:19:41: The proof, zero quantified synergy targets.

00:19:45: not for smart recruiters.

00:19:46: or walk me and Linux.

00:19:49: just PR sentences about strategic fit.

00:19:52: And now comes point that really made pause while reading because they clearly can quantify.

00:19:58: Oh They Can.

00:19:59: Look at risk reporting.

00:20:00: Thirteen of thirteen top risks are backed with euro ranges every single one Plus, concrete countermeasures.

00:20:07: Three of four sensitivity analyses A recognized risk management system An unqualified audit opinion.

00:20:14: That's exemplary.

00:20:15: The report explicitly rates it as consistent and strong.

00:20:19: So summed up with a wink On one side they document every internal risk down to the euro But when they spend three digit millions on a company They don't tell us what synergies its supposed bring.

00:20:30: You've hit exactly.

00:20:32: And once you see this pattern... ...you'll see everywhere in that report On the opportunities, four big themes named AI monetization cloud migration partner ecosystem sustainability.

00:20:43: not a single one put in concrete figures.

00:20:46: While every risk is in euros.

00:20:48: Market share no figure.

00:20:50: market size no figure.

00:20:51: organic growth No split.

00:20:53: AI monetisation no metric.

00:20:56: And what's the common denominator?

00:20:58: Precise where it's mandatory.

00:21:00: vague where its voluntary.

00:21:01: It's not an accusation.

00:21:03: No law demands synergy figures.

00:21:05: SAP is doing nothing forbidden, but a company that claims to be world-class in transparency would — where it's voluntary—be just as precise as where it must

00:21:15: be.".

00:21:15: That's the difference between a four and five.

00:21:18: And even were they are precise?

00:21:20: Does it hold up?

00:21:21: Good question!

00:21:22: Take the legal dispute with TerraData.

00:21:24: Three hundred eighty seven million euros SAP had set aside for it.

00:21:28: Nearly four hundred

00:21:30: million?!

00:21:30: How does something like this appear?

00:21:33: To be fair, the dispute has run since twenty-eighteen and is properly documented in The Notes.

00:21:38: But I looked at what stood in the prior year report before the provision came.

00:21:43: And?

00:21:44: TerraData doesn't appear it.

00:21:46: The name does not fall into entire risk reporting a single time.

00:21:50: What's there is category legal intellectual property range.

00:21:55: one hundred to five hundred million probability unlikely.

00:21:59: And then

00:21:59: three hundred eighty seven million came.

00:22:01: And now the part I have to acknowledge.

00:22:04: The size was right, three hundred eighty seven sits in the middle of the range.

00:22:08: SAP correctly gauged how heavy the block is

00:22:11: But not that it would fall?

00:22:12: The

00:22:13: probability was off.

00:22:14: and for me as an investor above all one thing remains... ...the overview tells Me How Big The Draw Is Not What's In It!

00:22:22: I see a Range Between One Hundred and Five Hundred Million but not That.

00:22:26: Inside It Sits A Case That'S Been Running For Seven Years.

00:22:29: And which drawers are there still?

00:22:32: Exactly that question.

00:22:33: Remember it, we're getting to a much bigger one.

00:22:36: shortly.

00:22:36: Before that the second legacy issue An ongoing EU antitrust investigation into on-premise support Which SAP is contesting.

00:22:45: Properly disclosed unresolved.

00:22:48: As long as thats'the case There's no five on governance.

00:22:52: So... The bigger drawer?

00:22:54: SAP only splits its business Into two divisions.

00:22:59: Before that, everything was one single block.

00:23:02: And even today... One division holds nearly ninety percent of revenue.

00:23:06: Eighty-nine

00:23:07: point three to be exact!

00:23:09: But THAT'S NOT a customer segment right?

00:23:12: So not ONE CUSTOMER makes up ninety per

00:23:15: cent?!

00:23:16: No.. That would be a misunderstanding and a dramatic one.

00:23:19: It's a business division Cloud software & support together SAPs heart with the six figure customer base

00:23:27: In The Second Division.

00:23:28: It's called core services.

00:23:30: A good ten percent of revenue, it grew by zero point seven per cent.

00:23:35: So practically not at all.

00:23:36: Now the part that really counts The margin... ...the big division turns every euro of revenue into forty cents of operating profit.

00:23:44: The small one?

00:23:45: Eleven

00:23:46: Forty against eleven

00:23:47: And from that follows the number that matters.

00:23:50: Nearly ninety-seven percent Of the entire Operating Segment.

00:23:53: Profit Comes From This One Block

00:23:57: decoration

00:23:58: and appendage.

00:23:59: And that's the point when you value a company, You want to know what happens if The main engine sputters.

00:24:06: at most companies of this size?

00:24:07: There is second division That pushes back

00:24:09: in it SAP.

00:24:11: there Is nothing that pushes Back.

00:24:13: the small Division earns eleven cents per euro and isn't growing.

00:24:16: It can't catch anything!

00:24:18: Thats no acute danger...the big division is running superbly..it just means theres No backup

00:24:25: And that's why business model and competition only get a four.

00:24:36: So, you'd announced the second mechanism

00:24:45: The

00:24:51: permissible accounting trick.

00:24:52: Dear investors Crazy year, one-off costs lawyers restructuring.

00:24:58: We strip that out.

00:24:59: so you see the true earnings power

00:25:01: and most of the time That's legitimate.

00:25:03: but now The question thats almost never asked when did You last See a company strip Out something that makes it look better?

00:25:10: Um Never

00:25:11: Almost never And I say almost deliberately.

00:25:15: Exceptions exist But they're So rare that none Just came to your mind.

00:25:20: Thats the real finding.

00:25:21: True i really can't think Of One.

00:25:24: Adjusting almost always goes in one direction, burdens out.

00:25:28: A one-off gain from a sale stays in.

00:25:30: of course.

00:25:31: that's the asymmetry not between two years but structurally every year at almost every company in the world.

00:25:38: and at SAP?

00:25:39: The same three adjusted items in twenty twenty five acquisitions restructuring teradata.

00:25:46: all Three burdens All three stripped out But they do it sparingly.

00:25:50: The share of adjustments fell from almost seventy-five percent the year before to a good eight.

00:25:55: So where's the problem?

00:25:56: That the adjusted number is still systematically the friendlier one At SAP, twenty-eight point three percent margin adjusted Twenty six point one percent under the official rules.

00:26:07: and the headline always takes the bigger one.

00:26:09: And what does that mean for me...the next time I read a headline like that

00:26:13: Two moves on.

00:26:14: the first you look for word Which

00:26:16: one?

00:26:16: Adjusted or non-afferous.

00:26:19: As soon as that appears anywhere, there are two results.

00:26:22: The official one and the friendlier one... ...and then you want to know how far apart they are.

00:26:27: And where does that stand?

00:26:28: Every company has to disclose it In the annual report.

00:26:31: There's a reconciliation.

00:26:33: Here're the official number.

00:26:34: Hear'e the items that were stripped out.

00:26:36: Hear'er the adjusted result At SAP.

00:26:39: It is exactly three lines.

00:26:42: How do I know whether its too much

00:26:44: in our model?

00:26:44: theres simple threshold.

00:26:46: If the adjustments make up less than ten percent of the result, it's unremarkable.

00:26:51: SAP is at a good eight.

00:26:53: The year before It was seventy-five

00:26:56: Seventy five per cent?

00:26:58: There...the reported results consisted three quarters Of things that were stripped out.

00:27:02: When you see A value like That ...The adjusted number Is no longer information But acclaim.

00:27:08: Okay!

00:27:08: In the second move

00:27:09: Don't compare with the prior Year.

00:27:11: Compare With the year Before THAT

00:27:13: Because the prior year Might have been in the basement

00:27:16: Exactly.

00:27:17: Every doubling headline lives off its comparison point, take three years instead of two and the basement effect jumps out immediately at SAP.

00:27:25: twenty-twenty-three solid twenty-Twenty four in The Basement.

00:27:30: Twenty twenty five back up .The line over Three Years is a Solid Upward Move not A Rocket.

00:27:37: Two Moves Not Even Two Minutes

00:27:39: And a warning to close.

00:27:40: adjusted isn't automatically suspicious.

00:27:44: SAP is the proof.

00:27:45: They calculate cleanly and sparingly.

00:27:48: The mistake isn't that they adjust, it's taking an adjusted number for truth without checking what's missing.

00:27:55: And if I have no appetite for reconciliation tables at all?

00:27:59: Then take cash flow.

00:28:00: It doesn't get adjusted.

00:28:02: What sits in account at year end sits there or does not?

00:28:06: If you were sitting across from board...what would be answer to you?

00:28:10: Three questions.

00:28:11: First Quantify the worst case scenario of EU antitrust investigation.

00:28:16: In Euros, no legal boilerplate.

00:28:19: Second put proof on table that acquisitions pay off concrete Euro synergies for the twenty nine billion goodwill mountain.

00:28:27: and third explain why customer value is back where it already stood in twenty-twenty three.

00:28:33: after two years cloud transformation you yourself cited as reason to rise Okay.

00:28:38: And now the question of all questions, what does that mean for me?

00:28:44: Sum it up and upfront.

00:28:46: for the record this is not an investment recommendation.

00:28:49: neither buy nor hold or sell

00:28:52: Three things.

00:28:53: first The operational turnaround Is no mirage.

00:28:56: the cloud rebuild generates massive tangible cash flows.

00:29:00: the business model scales proven.

00:29:02: That's why three times the full mark.

00:29:04: Second, don't believe any tech narrative without checking the receipt.

00:29:09: A chart with rising bars and a falling growth line is not a receipt.

00:29:13: And third an order backlog is no guarantee.

00:29:16: Seventy-seven billion is great.

00:29:18: But one target SAP missed was of all things The customer value.

00:29:24: So operationally machine runs perfectly.

00:29:27: The balance sheet is a vault The cash flow enormous but vague.

00:29:32: where disclosure voluntary and no backup if the main division sputters.

00:29:36: Score four out of five, green zone under observation.

00:29:39: And now in plain terms please Warning lights.

00:29:43: Does that mean something is broken somewhere?

00:29:45: No!

00:29:46: The difference matters.

00:29:47: Nothing Is Broken.

00:29:49: None Of The Eight Categories Falls Below A Four.

00:29:51: Three Are On Top.

00:29:52: Mark A warning light with us means here I'm missing an answer.

00:29:57: Not Here.

00:29:58: It's Burning

00:29:59: And Under Observation.

00:30:01: That Sounds Like a Regulator.

00:30:03: NO It simply means this.

00:30:04: four isn't a label that now sticks for three years.

00:30:07: There are concrete things that move it in both

00:30:10: directions.

00:30:12: Let's start with the good one.

00:30:13: For The Five, they'd have to answer exactly the three questions I just posed Nothing more.

00:30:18: All Three lie entirely in SAPs own

00:30:21: hands.

00:30:22: That needs no Good Market No Economy Just decision-to-name numbers.

00:30:26: And the other direction?

00:30:28: There...I'm watching two Things.

00:30:30: If the customer value gives way again next year instead of recovering, an open question becomes a trend.

00:30:36: And if the order backlog not only grows more slowly but shrinks then the bill comes earlier than

00:30:42: expected.".

00:30:43: And now the most important thing because I know how a forelike this gets read is that a buy signal?

00:30:49: No and that's not a legal disclaimer it's a methodological boundary.

00:30:53: we assess the equity story Corey.

00:30:55: We don't assess the price.

00:30:57: It doesn't appear in your report at all

00:30:59: Not a single time.

00:31:01: An outstanding company can be a miserable stock if you pay too much for it, and the mediocre one can be worth it If its cheap enough.

00:31:08: What do get here is answer to How good this business?

00:31:11: And how honestly does it tell of itself?

00:31:13: what's allowed?

00:31:14: cost Is completely different question and when have to answer yourself.

00:31:19: So quality checked price not

00:31:21: Exactly Corey A quality machine with few warning

00:31:24: lights.

00:31:25: To close You've brought One bigger thought

00:31:28: One that goes far beyond SAP, think once more of the falling line in the innovation chart.

00:31:33: Let's assume for a moment The Friendly Explanation is true.

00:31:36: SAP really does use AI to cut its own development costs massively instead of raising them.

00:31:43: That would be good news

00:31:44: For SAP?

00:31:45: Yes.

00:31:46: But then ask yourself the same question If software can in future be built with a fraction of the previous effort, what then happens to prices and margins over the next five years?

00:32:00: Or do

00:32:03: these historic efficiency gains flow exclusively into shareholders' pockets.

00:32:08: That's the question behind every single AI announcement in this industry... ...and it still completely open!

00:32:15: Until The Next Deep Dive.

00:32:17: And if you don't want to miss any analysis, warren-wise.com subscribe to the podcast.

00:32:23: have a fine profitable day and always remember be wise when others go crazy.

00:32:29: yours Warren Wise.

00:32:45: is for information and educational purposes only.

00:32:50: It's not investment advice, it isn't a recommendation to buy hold or sell any security.

00:32:56: The analysis based on publicly available information may contain errors.

00:33:02: Always make your own decisions And when in doubt consult a qualified financial advisor.