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Oracle Soaring on Cloud

Posted on Monday, Jun 26th 2017

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Oracle (NYSE: ORCL) has finally achieved a major milestone in its transition to the cloud. Its cloud business revenue has finally overtaken its new software license revenue, which justifies its move to the cloud.

Oracle’s Financials

Oracle’s fourth quarter revenues were up 3% to $10.89 billion, beating analyst estimates of $10.45 billion. Net income was up 15% to $3.2 billion or $0.76 per share. Non-GAAP EPS was up 10% to $0.89 per share, beating the Street forecast of $0.78. Short-term deferred revenues were up 8% to $8.2 billion.

By segment, SaaS cloud revenues were up 67% to $964 million. Cloud PaaS and IaaS revenues were up 40 % to $397 million. Total cloud revenues were up 58% to $1.36 billion or 13% of total revenue. New  software licenses revenues were down 5% and total on-premise software revenues were down 1% to $7.5 billion. Total hardware revenue declined 13% to $1.1 billion. Total services revenues increased 3% to $894 million.

For fiscal 2017, total revenues grew 2% to $37.7 billion and net income was up 5% to $9.3 billion or $2.21 per share. Cloud SaaS revenues were up 61% to $3.2 billion and Cloud PaaS and IaaS revenues were up 60% to $1.4 billion. On-premise software revenues were down 2% to $25.6 billion, and hardware revenues were down 11% to $4.1 billion.

During the fourth quarter, Oracle added 1,125 new SaaS customers during the quarter, with over two-thirds of them for Fusion HCM. It now has 13,103 customers in its SaaS active base and 25,000 with NetSuite, which was acquired last year.

Based on its strong performance, Oracle expects non GAAP EPS of $0.59 to $0.61 and 4%-6% revenue growth for the first quarter of fiscal 2018. Analysts expected an average of $0.59 cents in EPS and 3.9% revenue growth.

The company purchased approximately 30 million shares for $500 million. Over fiscal 2017, it has repurchased 124 million shares for $5 billion and paid out dividends of $2.5 billion. The Board of Directors has increased the quarterly dividend 27% from $0.15 to $0.19 per share.

Oracle’s Deal with AT&T

A strong factor for Oracle’s performance during the quarter was its deal with AT&T, as a result of which AT&T will migrate thousands of existing Oracle databases containing petabytes of data plus their associated applications workloads to the Oracle Cloud. Oracle expects more of its big customers to follow and expects these large-scale migrations to dramatically increase the size of both its PaaS and IaaS cloud businesses.

However, Oracle still has a long way to go in this market. It has just 1.7% share of the cloud IaaS market while Amazon dominates the cloud IaaS market with around 34% market share. AWS net sales jumped 43% to $3.6 billion in the recent first quarter. Microsoft, Alphabet, and IBM together account for 30.8% of the market.

Another new focus area for Oracle is AI. Earlier this month, the company announced a slew of new features for its identity-based Security Operation Center (SOC) cloud services with integrated artificial intelligence, machine learning, and contextual awareness.

Oracle’s Acquisitions

In April, Oracle acquired Moat, a company that tracks digital ads, for $850 million. Moat will remain an independent platform within Oracle Data Cloud, providing trusted measurement, analytics, and intelligence to leading brands and publishers. Since 2010, Moat has raised $67.5 million in four rounds.

Oracle also acquired developer tools startup Wercker in April for an undisclosed amount. The Amsterdam-based startup had raised $7.9 million in three rounds. Wercker’s container-centric and cloud-native automation platform comprises of their local command line interface (CLI), online SaaS platform, and API. Wercker’s container lifecycle management will be added to Oracle’s Cloud.

Following the results, Wedbush upgraded Oracle from Neutral to Outperform with a price target of $56. Oracle’s stock is currently trading at a 52-week high of $50.95 with a market cap of $212 billion. Its 52-week low was $37.62 in October last year.

Photo Credit: May Wong/Flickr.com

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