Software company SAP SE (NYSE: SAP) is trading over 1% higher premarket Friday, despite the company slashing its outlook to account for the divestment of its subsidiary Qualtrics and missing profit expectations for the first quarter.

SAP shares initially fell following the announcement but have since regained those losses and more.

The company reported Q1 EPS of EUR0.35, EUR0.77 worse than the analyst estimate of EUR1.12. However, revenue for the quarter came in at EUR7.44 billion beating the consensus estimate of EUR8.15 billion. In addition, revenues from its cloud division jumped 24% to EUR3.18 billion.

"We have entered a powerful new phase in our strategic transformation, with topline and bottom-line results clearly demonstrating the tipping point we passed in the fourth quarter 2022," said Christian Klein, SAP CEO. "Our cloud momentum continues at a fast pace which is contributing to our strong revenue and double-digit non-IFRS operating profit growth this quarter."

After the divestment of its subsidiary Qualtrics, SAP cut its 2023 cloud revenue forecast to EUR14 billion to EUR14.4 billion. In addition, it sees non-IFRS operating profit between EUR8.6 billion and EUR8.9 billion, falling EUR200 million from its previous outlook.

Reacting to the report, BofA analyst Frederic Boulan maintained a Buy rating on the stock, telling investors in a note that SAP "delivered a solid Q1 with a 2.2% revenue beat vs consensus and Adj EBIT 3% beat."

The analyst also noted that the company's cloud momentum and software unit are strengthening.

"Group revenue was up 9% YoY on a constant currency basis (vs BofA 6.3%), with Software revenues 0.9% ahead driven by a stronger licence revenue (34% ahead, maintenance 0.4% ahead, Cloud 1% miss). Cloud backlog was strong, + 25% YoY (cc) from 24% in Q4. Adj EBIT of €1,875 was 3% above consensus, 0.9% above BofAe," he wrote. " The 2023 guidance framework was unchanged ex-Qualtrics (XM), with cloud revenue growth now seen at +23/26% (from +22/25% inc XM), Software revenue unchanged at+6-8%, and Adj Operating Profit +8-11% vs 10-13% before."

By Sam Boughedda