What happened

Shares of SAP (SAP 1.50%) sank 31.1% in October, according to data from S&P Global Market Intelligence. The stock fell after the company reported concerning third-quarter results and full-year guidance late in the month.

SAP reported Q3 earnings on Oct. 25, with sales coming in below the market's expectations but profits topping the average target. Revenue for the period fell roughly 4% year over year to land at 6.54 billion euros, but adjusted earnings per share rose roughly 31% to 1.70 euros. Sales for the period missed the market's target by roughly 300 million euros, and adjusted earnings beat the average target by 0.40 euros.

A cloud icon.

Image source: Getty Images.

So what

SAP is now guiding for full-year revenue between 27.2 billion euros and 27.8 billion euros, down from its previous target for sales between 27.8 billion euros and 28.5 billion euros. The German software giant is in the midst of transition from on-premise to cloud solutions, but it also cut its performance target for its cloud segment. The company now expects cloud revenue to be between 8 billion euros and 8.2 billion euros for the year, down from its previous target for segment revenue between 8.3 billion euros and 8.7 billion euros.   

SAP management now expects operating profit for the year to be between 8.1 billion euros and 8.5 billion euros. It had previously guided for operating income to be as high as 8.7 billion euros. 

Now what

SAP stock is enjoying a rebound early in November's trading. Amid momentum for the broader market, the company's share price has climbed roughly 10% in the month so far. 

SAP Chart

SAP data by YCharts

SAP has attributed the underwhelming outlook to economic challenges created by the coronavirus pandemic and growing pains from its transition to a cloud software focus. The company expects that cloud growth will accelerate and hit roughly 22 billion euros in 2025, and investors will want to monitor how this ongoing transition pans out. 

Investors may also want to keep an eye on developments surrounding the upcoming initial public offering for SAP's Qualtrics unit.