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Software Giant SAP Shows Signs That Revamp Is Bearing Fruit

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Software Giant SAP Shows Signs That Revamp Is Bearing Fruit

BERLIN—Business-software maker

SAP SE


SAP -2.02%

raised its earnings outlook as strong growth in cloud-based software drove a 22% increase in fourth-quarter profit, beating analysts’ estimates.

The Walldorf, Germany-based company reported its first results under its new leadership, after longtime Chief Executive

Bill McDermott

departed and

Jennifer Morgan

and

Christian Klein

were appointed co-CEOs in October.

The solid results cap a tumultuous year for one of Europe’s most valuable technology companies, as it shifts customers away from on-site business software toward cloud-based solutions.

Facing stiff competition from Amazon.com Inc.,

Alphabet Inc.’s

Google,

Microsoft Corp.

and others, SAP launched a restructuring effort a year ago, shedding 4,400 jobs and costing an estimated €800 million to €950 million ($882 million to $1.05 billion).

SAP on Tuesday said net profit rose to €2.18 billion in the three months to Dec. 31 from €1.79 billion a year earlier.

Encouraged by a 32% increase in cloud revenue in the fourth quarter, SAP lifted its sales outlook for 2020 around 2% to as much as €29.7 billion. It also raised its profit target to up to €9.3 billion from a previous estimate of €9.1 billion.

New cloud bookings rose 17% in the quarter, as cloud revenue rose to €1.9 billion from €1.4 billion a year earlier. However, that business still trailed traditional software licenses and support, which generated €4.95 billion, up 1%.

“We have great expectations for continued efficiency gains and expansion of our profitability in 2020,” said Chief Financial Officer

Luka Mucic

on a conference call.

Despite the results, SAP shares were down 1.3% in early trading Tuesday.

In April 2019, activist hedge fund Elliott Management disclosed a €1.2 billion stake in SAP, worth about 1% of the company. Also that month, SAP announced a comprehensive review of its efforts to boost profit for shareholders, targeting an annual dividend payout ratio of at least 40% of profit.

Write to William Boston at william.boston@wsj.com and Sara Germano at sara.germano@wsj.com

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