Oracle Q1’17 Earnings Review: Cloud Continues To Be In Limelight Amidst Slow Revenue Growth

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Database Management Software company  Oracle (NYSE:ORCL) released its Q1’17 earnings on September 15th, with somewhat mixed results. (Fiscal years end with May.)  The company continued to show an exceptional growth of 59% in total cloud revenues (61% in constant currency), though it missed the earnings guidance and expectations on the total revenues. The more than offset the decline in Oracle’s traditional on-premise business and hardware was down as well. In sum, total revenues increased by 2% (3% in constant currency).  The operating margin held steady at 31%, despite heavier spending on legal items coming into the new fiscal year.  The fact is that it is now reaping the benefits of the infrastructure investments it has to date made in the cloud, which should trickle down to the bottom line going forward. Similarly, the company received some benefits to the top-line from its new acquisitions, though it is yet to extract their full potential, which when done, is likely to drive the similar cloud growth in the future too.

Oracle-Q1'17-results

 

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See our complete analysis for Oracle

Shrinking Licensing Revenues Not A Worry

According to McKinsey & Co., by 2018, 37% of the companies will have at least one workload shifted to the cloud as compared to 25% in 2015. By its nature, the shift to the cloud will be at the  expense of on-premise software revenues, as even hold-outs to this trend deploy selected workloads to the cloud in the coming decade. What matters more is the increase in total customer base and its impact on revenues.  And on this the front, Oracle has been doing reasonably well:  it added 776 new customers to its SaaS arsenal, 2032 to PaaS and 1671 in IaaS. Oracle claims that 50% of its ERP customers are net new to the company as they had not used Oracle’s services in the past [1]. The company  is holding its annual User Group nest week, Oracle OpenWorld, where it will display its new cloud products to its existing and potential customers. There will be a push to marshal the existing customer base towards the new cloud offerings, which can help Oracle in tackling the on-premise woes.

Focus On All The Three Cloud Segments

The company’s chairman Larry Ellison has now been reiterating the fact that Oracle, unlike its competitors such as Salesforce (NYSE:CRM) and Workday, is focusing on all three segments of the cloud, which includes IaaS along with SaaS and PaaS. This demonstrates the fact that Oracle is widening its reach, and plans to directly compete with Amazon Web Services. It is already claiming that its generation 2 data centers are more cost and performance effective than AWS. The decent exposure to all the three segments of cloud will enable Oracle to facilitate its customers to move their entire data, applications and infrastructure to Oracle’s cloud, making it a one stop shop for the needs of its clients.

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Notes:
  1. Oracle’s Earnings Transcripts []