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Oracle’s Cloud Strategy Paying Off

Posted on Thursday, Dec 22nd 2016

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Oracle has spent more than $10 billion this year on nine acquisitions this year. More than five of them, including the $9.3 billion acquisition of NetSuite, are focused on its cloud strategy. In its recent quarter, it reported a stellar quarter for its cloud business, which for the first time surpassed the $1 billion milestone.

Oracle’s Recent Financials 

Oracle’s second quarter revenues were up 1% to $9.03 billion, missing analyst estimates of $9.12 billion. Net Income was $2.0 billion or $0.48 per share. Non-GAAP net Income was $2.6 billion or $0.61 per share, beating the Street forecast of $0.60. Short-term deferred revenues were $7.4 billion, up 6%.

It ended the quarter with cash balance of $18.5 billion and marketable securities of $39.6 billion. The board also declared a quarterly cash dividend of 40.15 per share.

By segment, Oracle’s cloud business is continuing to do well while other segments are seeing a decline. Software sold as cloud service and Platform-as-a-Service grew 81% over the year to $878 million. Cloud Infrastructure-as-a-Service revenues grew 6% to $175 million, translating to total cloud revenue growth of 64% to $1.05 billion. New software licenses revenue fell 20% to $1.3 billion and Software license updates and product support revenues increased 2% to $4.7 billion. Total hardware revenue declined 10% to $1 billion. Total services revenues fell 2% to $844 million.

For the third quarter of fiscal 2017, Oracle expects currency headwinds to continue. Total revenue is expected to grow 3% to 5%. SaaS and PaaS revenues including NetSuite is expected to grow 82% to 86%. Software and cloud revenue including SaaS, PaaS and IaaS, new software license and software support is expected to grow 4% to 6%. EPS is expected between $0.61 and $0.64. Analysts expect EPS of $0.64.

With the addition of NetSuite, Oracle now expects FY17 SaaS and PaaS revenue growth from 67% to 80%.

Oracle’s Acquisitions

In November Oracle announced its plans to buy Palerra, a cloud security startup co-founded by former Oracle executives Rohit Gupta and Ganesh Kirti in 2013. Originally called Apprity, it has raised $25 million with investors including Norwest Venture Partners and August Capital. It focuses on providing security automation for enterprise apps and its customers included VMware, Pitney Bowes, and Jefferies. It also has partnered with Microsoft. Terms of the deal were not disclosed.

In September, Oracle announced its plans to buy Dyn. It plans to add Dyn’s DNS solution to its cloud computing platform. Terms of the deal were not disclosed but analysts expect it to be worth more than $600 million. Dyn, founded in 2001, raised $88 million with investors including North Bridge Venture Partners & Growth Equity and Pamplona Capital Management. In October 2016, Dyn was the target of a distributed denial of service (DDoS) cyberattack that affected websites such as Twitter, Spotify, and Reddit. These DDoS attacks disturb the system by inundating a network with web traffic.

I recently suggested that Oracle acquire Workday, which seems to be struggling and is currently trading at a market cap of $13.8 billion. Workday’s third quarter revenues grew 34% over the year to $409.58 million driven by a 38% growth in subscription revenues which came in at $335.7 million. It expects to end the current year with revenues of $1.56 billion-$1.563 billion with billings of $1.887-$1.892 billion. Workday is focusing on the public sector, which analysts say indicates that it is struggling to sell to the larger and more lucrative private sector. It is also a good prospect for Microsoft, which is also focusing on cloud.

Oracle is currently trading at $38.83 with a market cap of $159.83 billion. Its 52-week range is $33.13 – $42.00.

Photo Credit: May Wong/Flickr.com

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