When your CFO admits things are worse than expected, the market tends to notice. That's exactly what happened to SAP SE (SAP) on Thursday, as shares cratered more than 14% after the German software giant reported fourth-quarter fiscal 2025 results that mixed solid profitability with a cloud growth story that's becoming more complicated than investors hoped.

The numbers themselves told a split story. Revenue climbed 3% year-over-year to 9.68 billion euros, or about 9% in constant currency terms. Non-IFRS earnings per share jumped 16% to 1.62 euros. In dollar terms, SAP posted earnings of $1.89 per share, comfortably ahead of the $1.76 analyst consensus. So far, so good.

But revenue of $11.27 billion came in below the Street's expectation of $11.46 billion. More importantly, the company's cloud backlog metrics revealed a deceleration that management hadn't quite prepared investors for.

The Cloud Backlog Reality Check

Here's where things get interesting. SAP's current cloud backlog reached 21.05 billion euros, growing 16% year-over-year, or 25% in constant currency. Cloud revenue itself rose 19% year-over-year, hitting 26% growth in constant currency to reach 5.61 billion euros. Cloud ERP Suite revenue specifically grew 23%, or 30% at constant currencies.

Those sound like healthy numbers. The problem? They represent a sharper slowdown than anyone expected.

During the earnings call, CFO Dominik Asam didn't sugarcoat it. "This is a more pronounced slowdown than what we had anticipated and more than the slight deceleration we guided to at the beginning of last year," he acknowledged.

What's driving the slowdown? Asam pointed to three main culprits. First, SAP is increasingly landing larger digital transformation deals that take longer to ramp up and generate revenue. These mega-projects come with more flexible commercial structures, which sounds great for customers but dampens the near-term contribution to backlog.

Second, geopolitical tensions are pushing customers toward sovereign SaaS solutions, particularly in government, defense, and sensitive commercial sectors. These sovereign cloud deals add complexity and length to negotiations and deployments. While SAP sees strong pipeline activity in sovereign cloud, Asam noted these deals simply take longer to close and generate revenue compared to standard U.S. infrastructure-based offerings.

The company also noted that large transformational deals with high cloud revenue ramps in outer years and legally mandated termination-for-convenience clauses negatively impacted fourth-quarter constant currency current cloud backlog growth by approximately one percentage point.

Profitability Remains Strong

The growth story might be murkier, but SAP's profitability metrics held up well. IFRS operating profit grew 27% year-over-year, while non-IFRS operating profit increased 16%, or 21% at constant currencies. Operating cash flow came in at 1.30 billion euros, with free cash flow reaching 1.03 billion euros for the quarter.

As of December 31, total cloud backlog stood at 77.29 billion euros, up 22% year-over-year or 30% in constant currency. That's a substantial pipeline of future revenue, even if it's accumulating at a slower pace than hoped.

The company's board approved a substantial new share buyback program of up to 10 billion euros, set to run from February 2026 through the end of 2027. That's a meaningful vote of confidence in the underlying business, even amid the near-term growth complications.

Looking Ahead

For 2026, SAP expects cloud revenue between 25.8 billion and 26.2 billion euros, with total cloud and software revenue projected at 36.3 billion to 36.8 billion euros. Operating profit is forecast between 11.9 billion and 12.3 billion euros, with free cash flow targeted around 10 billion euros.

The company also projects constant-currency revenue growth will accelerate through 2027, though it expects a faster decline in software support revenue as customers accelerate their migration to cloud solutions.

Management's Take

CEO Christian Klein emphasized the positive angle, stating: "The significant Current Cloud Backlog growth in Q4 has laid a strong foundation for accelerating Total Revenue growth through 2027. SAP Business AI has become a main driver for growth as it was included in two thirds of our Q4 cloud order entry, combined with strong AI adoption across the ERP Suite."

Asam added: "We closed 2025 on a high note, delivering strong operating profit and free cash flow ahead of our expectations. This performance reflects focused execution, financial discipline, and the continued trust our customers place in us as the North Star for their digital transformation."

SAP shares were down 14.88% at $200.98 during premarket trading on Thursday, hitting a new 52-week low. It's a harsh reminder that in software, the rate of growth acceleration matters as much as the absolute growth numbers themselves.