Oracle’s Q3 Financials: The Math Points to More Cloud Growth

Even as Oracle’s cloud businesses continue to expand at double-digit rates, big growth opportunities still lie ahead, especially for the company’s cloud application and platform businesses, Oracle executives explained on the company’s third-quarter earnings call on March 19.

For the fiscal quarter ended February 28, Oracle reported operating income of $3.4 billion, up 15% from the year-earlier quarter, on 6% higher revenue of $9.8 billion. The company’s total cloud revenue rose 32% in the quarter, to $1.6 billion. Software-as-a-service (SaaS) revenue increased 33%, to $1.2 billion, while platform-as-a-service (PaaS) plus infrastructure-as-a-service (IaaS) revenue was up 28%, to $415 million.

Even though Oracle’s cloud revenue growth has slowed in recent quarters, several factors bode well for its continued, profitable expansion, the executives said:

The “autonomous” movement will be a PaaS game changer. Oracle’s third-quarter PaaS growth numbers don’t yet reflect the just-released self-managing, self-tuning, self-patching Oracle Autonomous Database Cloud, or the company’s forthcoming autonomous analytics, mobility, application development, and integration services. “No other cloud provider has anything like it,” says Larry Ellison, Oracle’s executive chairman, CTO, and cofounder.

The promise of those next-generation PaaS products includes lower costs, higher performance, and improved security. “It’s a huge benefit to our customers to move to the autonomous database,” Ellison says. “It just went live a couple of weeks ago, and we expect it’s going to change the profile of our company forever.”

It’s still early days for SaaS. Consider the fact that less than 15% of Oracle’s on-premises application customers have begun to migrate their apps to the cloud.

“As the other 85% of our applications customers start to move their applications to the cloud, we have a huge opportunity in front of us,” Oracle CEO Mark Hurd says. “We expect to more than double the size of our SaaS business very quickly.”

Adds CEO Safra Catz: “This is not 15% have moved all of their apps to the cloud. They’ve just started. So there’s a ton of room here—tons.”

It’s all in the math. Oracle’s two largest SaaS businesses—ERP (which includes financial, procurement, supply chain, and other application services) and HCM (which includes hiring, payroll, talent management, and other HR services)—are growing considerably faster than Oracle’s overall SaaS business, Hurd says.

As those Fusion businesses become a larger percentage of Oracle’s total SaaS business, and its slower-growing SaaS businesses become a smaller percentage, the law of large numbers starts to take over. “The math just says the growth rate should accelerate because of the mix change,” Ellison says.

The competitive dynamics are changing. Oracle isn’t just converting existing on-premises ERP customers to its cloud line. In fact, most of the current customers of Oracle ERP Cloud had never bought an application from Oracle before. Among the wins in the third quarter are Blue Cross and Blue Shield of Florida, Broadcom, Master Lock, and Wm Morrison Supermarkets, Hurd says.

The upshot: Oracle is taking ERP market share from competitors—not just from on-premises ERP market leader SAP, but also from the scores of smaller vendors that in aggregate currently hold more than half of the market, he says.

In cloud ERP, “we are the leading vendor in the world, and the No. 2 company is hard for me to find….” Hurd says. “When I look at SaaS there is no other company that has the ability to take customers to the cloud with a true SaaS offering—so full stop.”

 

Safe Harbor Disclaimer: Statements in this article relating to Oracle’s future plans, expectations, beliefs, intentions, and prospects, including statements regarding Oracle’s continued profitable expansion, the future impact of Oracle’s autonomous database offerings, and the growth of Oracle’s SaaS business and operating margins, are “forward-looking statements” and are subject to material risks and uncertainties. Many factors could affect Oracle’s current expectations and actual results, and could cause actual results to differ materially. A discussion of such factors and other risks that affect Oracle’s business is contained in Oracle’s Securities and Exchange Commission (SEC) filings, including Oracle’s most recent reports on Form 10-K and Form 10-Q under the heading “Risk Factors.” These filings are available on the SEC’s website or on Oracle’s website at http://www.oracle.com/investor. All information in this article is current as of March 22, 2018, and Oracle undertakes no duty to update any statement in light of new information or future events.

 

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