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Expect More Cloud Acquisitions from Oracle

Posted on Thursday, Jun 27th 2013

According to Gartner’s Forecast Overview: Public Cloud Services, Worldwide, 2011-2016, 4Q12 Update Published: 8 February 2013, worldwide spending on public cloud services is projected to grow 18% annually over 2011 through 2016 to be worth $210 billion in 2016. It is not just public cloud spending that is projected to grow. According to IDC, global spending on hosted private cloud services is projected to grow at more than 50% annually over 2012 through 2016 to surpass $24 billion in 2016. Technology giants are gearing up for this cloud expansion to drive their growth.

Oracle’s Financials
Oracle’s (Nasdaq:ORCL) Q4 revenues were flat over the year at $10.96 billion but fell significantly short of the market’s projected revenues of $11.27 billion. EPS of $0.84 was in line with the Street’s projected earnings for the quarter.

By segment, software revenues grew 3% over the year to $8.44 billion. The increase in the segment was attributed to the 6% increase in software license updates and product support revenues. Hardware revenues continued to decline and reported a 9% drop over the year to $1.44 billion. Services revenues fell 10% over the year to $1.09 billion.

The company ended the year with revenues remaining flat over the year at $37.2 billion. Overall software revenues for the year grew 5% to $27.5 billion while hardware revenues fell 15% over the year to $5.3 billion. Revenues from services also reported a decline of 7% over the year to $4.4 billion. EPS of $2.26 was higher than the previous year’s $1.96.

For the current quarter, Oracle expects revenues to grow 3%-6% over the year with EPS of $0.56-$0.59.

Cloud Computing Focus
To drive growth within the cloud segment, Oracle is working on the release of their upcoming cloud database 12c. Oracle’s 12c will be a big shift from Oracle’s existing database structure because of its pluggable multi-tenancy feature. Oracle will now be able to allow multiple databases to run inside of a single 12c database instance. This will be the world’s first multi-tenant database structure. Till now, SaaS providers like Salesforce have been offering multi-tenancy features at an application level so that customers share the same application instance, but their data is kept separate. Oracle has instead taken multi-tenancy to the database level.

Oracle is also entering into several strategic partnerships with big players like Salesforce.com and Microsoft to drive 12c’s reach. As part of their nine-year partnership with Salesforce.com, Salesforce will standardize on Oracle Linux operating system, Exadata engineered systems, Oracle Database, and Java Middleware Platform. In return, Oracle will integrate Salesforce.com with its cloud products, including Fusion HCM and Financial Cloud, and provide the core technology to power Salesforce’s applications and platform. The biggest implication of the partnership is that now Salesforce will “implement Oracle’s Fusion HCM and Financial cloud apps throughout the company and trump Workday.” This is surely a big win for Oracle.

Through their partnership with Microsoft, customers will be able to run Oracle software on Windows Server Hyper-V and in Windows Azure. Oracle will also certify and support this software on Windows Server Hyper-V and in Windows Azure.

Oracle’s stock is trading at $30.52 with a market capitalization of $143.78 billion. It touched a 52-week high of $36.43 earlier this year.

My prediction is that Oracle has a whole lot of cloud acquisitions coming. Larry Ellison is very comfortable with plugging gaps via M&A, and there are many substantial cloud computing companies in the market right now, each with $50 million-$500 million in revenue, 20-30% growth, and high, but still affordable valuations. I would not be surprised if Oracle acquires a whole bunch of them within the next 18 months. The ones that I would watch are Marketo, ON24, Brainshark, Xactly, Concur, Box, Dropbox, Okta, Cloudera, Zendesk, Tableau, and at least another 20 to 30 companies. We’ve covered all of them, and you should be able to find more details on them by clicking through the links.

 

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