The Q3 results were good, the stock shot up 5% ( and then giving back 2% today). Nonetheless the results were surprisingly good. However, one key metric that gives me concern is index on our Profit Margin, which was up 17% YOY from Q3.2022. The increase in Profit Margin was driven by lower expenses ( vs more profitable sales) and our expenses were lower because of the very large layoffs we incurred in Q2 of this year.
While an increase in net income or revenue is great, the most important indicator of how well the company is doing is to increase our net profit margin, meaning we maximize how much money we keep from each dollar we earn.
The point being that the danger zone is when companies learn that they can drive profit margin by lowering expenses ( = more layoffs) vs more profitable deals, this almost always has a catastrophic ending for the employees. It becomes a vicious circle of expense reductions (layoffs) to keep the market happy - a road well travelled by some companies who are no longer around. We already know that as the company shifts from On Prem to Cloud, the latter will not require any where near the HC we have in place today.
Hopefully SAP will not become dependent on expense reduction as a way to drive increases in Profit Margin, because if they do, it will not turn out so well for many of us next year. Keep your eye on the relationship between Profit Margin and how it is derived - if it is achieved because of expense reduction in Q4 combined with declining sales in ERP/Software installations, then it would be time to worry.