Europe’s largest software company SAP plans to use the Covid crisis to go all in on cloud computing. The German giant revealed its plans after it was forced to pull medium-term profitability targets as it continues to struggle with the effects of the coronavirus pandemic.

SAP reported disappointing earnings in the third quarter to 30 September, with revenue falling by 4% to €6.54 billion. Operating profit also fell 12%, based on international financial reporting standards. After adjustments and at constant currencies, profit rose 4%.

The decline was offset by a 10% increase in cloud computing revenue but downgraded guidance for revenue and earnings saw the stock plunge 20% to €100.70.

Embracing cloud computing offers clients cost, distribution and efficiency benefits, but going cloud-only brings forward some of the growth and profitability uncertainty of the switchover.

Traditionally selling term licences to use its tools means getting paid up front with high margin servicing and maintenance fees added to top. Cloud revenues are typically bought on a subscriptions basis, with customers paying as they go for what they use, depressing SAP income in the short-term.

The pay-off down the line should be more sticky subscription revenues from a cheaper, more flexible platform for users, plus lower cost of distributing updates, among other things.

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