Oracle’s Cloud Business Is The Golden Lining

Rob Preston

OracleVoice – 6/18/16

Oracle is well on its way to becoming the world’s largest cloud computing vendor, as its fiscal fourth-quarter financial report shows its cloud software and platform service revenues growing faster than those of its biggest competitors.

“We dramatically overachieved in the cloud,” CEO Saftra Catz said on the company’s earnings call Wednesday after the markets closed.

For its Q4 FY2015 ended May 31, Oracle reported that its software as a service (SaaS) and platform as a service (PaaS) revenues grew 29% compared with the year-earlier quarter (35% in constant currency), to $416 million. The company’s infrastructure as a service (IaaS) revenue rose 25% in the quarter (31% in constant currency), to $160 million.

What’s more, Oracle’s $426 million in SaaS and PaaS bookings in Q4 FY2015 is more than $125 million higher than the $300 million the company itself had forecast at the start of the quarter. That $426 million in Q4 SaaS and PaaS bookings—about half of the full-year bookings in just one quarter—represents 200%-plus year-on-year growth, “a cloud industry all-time-record” for new business in one quarter, CEO Mark Hurd said

For the full fiscal year, Oracle recorded SaaS and PaaS revenues of $1.5 billion, up 32% (35% in constant currency) from a year ago. Although the company didn’t break out SaaS and PaaS revenue separately, Executive Chairman and CTO Larry Ellison said Oracle’s PaaS business is growing even faster than its SaaS business. The company’s IaaS revenue rose 33% (36% in constant currency), to $608 million for the year.

“Things are good for Oracle and the cloud,” Ellison said.

Hurd said Oracle’s cloud revenue is already above a $2.3 billion annual run rate.

While that’s lower than the $5.37 billion in revenue (all SaaS and PaaS) that #1 cloud company posted in its fiscal year ended Jan. 31, 2015, Oracle’s cloud business is growing much faster than Salesforce’s, on a much wider potential base of applications and infrastructure.

Looking ahead to the rest of its FY2016, Oracle’s guidance is that its SaaS and PaaS revenue will grow as much as 60% in constant currency, irrespective of any new acquisitions.

That’s well ahead of the 20% to 21% revenue growth rate that Salesforce has given in its guidance for fiscal 2016. (And Salesforce is slowing down, as the 21% to 22% revenue growth it projects for fiscal 2016 compares to 32% year-on-year growth in fiscal 2015.)

Said Hurd: “We are doing what you very rarely ever see happen in our industry: We are getting bigger and our growth rate is expanding. We will be the world’s largest enterprise cloud company.”

Not Trading Places With Anyone

Among other takeaways from Oracle’s fiscal fourth-quarter and full-year financial report:

• SaaS is in high gear. Oracle added 1,217 new SaaS customers and expanded business with another 760 in the fourth quarter. Breaking down the SaaS wins by product category, Oracle added 312 new human capital management (HCM) customers in the quarter and 933 for the year (three times the total customer growth of cloud HR specialist Workday over the last four quarters); 657 new customer experience (CX) customers in the quarter and almost 1,900 for the year; and 380 enterprise resource planning (ERP) customers in the quarter and 888 for the year. “Our installed base is now almost 1,100 ERP customers in the cloud, nearly 10 times the size of Workday,” Hurd said. “And let me add: We really never see SAP.”

• And the SaaS/PaaS business is a lucrative one. Catz, who oversees Oracle’s financials, laid out the following example: A $1 million software license deal, recognized up front so that it drops straight to the bottom line, ultimately brings in about $3 million in revenue over 10 years. A $1 million SaaS/PaaS booking, with its recurring subscription revenue, brings in about $10 million over that same period. “I would not trade the cloud revenue for the license revenue,” she said, “as cloud revenue and cloud bookings mean significantly more in revenues and earnings over time.”

• Oracle’s core database business is on a roll. The company says customer adoption of its cloud-optimized Oracle Database 12c, introduced in 2013, has been about 50% faster than for the 11 version. Ellison says its database products have proved popular with one company in particular, SAP, which has signed deals to run its Concur, Ariba, and SuccessFactors cloud apps on Oracle rather than on its own Hana database. “SAP does not use Hana in the cloud very much,” Ellison said. “If they’re using Hana for anything, I don’t know about it.”

• Oracle shows its mettle in hardware. For the full year, Oracle’s hardware system revenue rose 2% in constant currency, to $5.2 billion. Hurd said Oracle is No. 1 in the US in sales of servers priced above $15,000 and that it’s the only company in the system hardware industry that’s growing, thanks in large part to its engineered hardware-software systems business, which recorded double-digit bookings growth in Q4. Hurd called hardware systems a declining market overall, “but I believe Oracle will gain market share in that declining market.” Notably, he said, Oracle took market share from IBM and HP.

• Steady wins the cloud race. Oracle’s big cloud numbers aren’t skewed by any “gargantuan” customer wins, Hurd said. He emphasized Oracle’s steady, consistent cloud growth across geographies, a testament to its innovative and evolving product line, more (and more-experienced and better-trained) cloud salespeople, and a growing base of customer references that the company can leverage.

• The sky’s the limit. The cloud software/platform business is a much bigger potential market segment for Oracle than the on-premises software market, the Oracle executives emphasized. The reason is simple: Oracle can dip much deeper into the midmarket with SaaS and PaaS than it did with on-premises software because what it’s selling is easier to install and maintain.

• Go broad or go home. Unlike competitors such as Salesforce and Workday—and Amazon Web Services in IaaS—Oracle doesn’t focus on only one or two cloud niches. It’s a leader in all three of the main “as a service” categories: platform (including database as a service), software, and infrastructure.

About 90% of its product line will be available as a cloud service come October, Hurd has said. As such, it’s much easier for customers to integrate Oracle’s cloud services with one another—as well as with Oracle’s on-premises software—than it is to patch together CRM, ERP, platform, compute, storage, and other software, hardware, and services from multiple providers.

As for Oracle’s total business, the company posted revenue of $10.7 billion in the fourth quarter, up 3% in constant currency from the year-earlier quarter. Software license and cloud revenues combined were $8.4 billion, up 2% in constant currency. Oracle posted operating income of $4.0 billion and an operating margin of 37% for the quarter.

For fiscal 2015, total revenues were $38.2 billion, up 4% in constant currency. Software and cloud revenues were $29.5 billion, up 5%. Oracle recorded operating income of $17.4 billion and an operating margin of 45% for the full year.



Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s