Oracle Q3’17 Earnings Preview: Overall Top-Line Likely To Grow, But Legacy Business Remains A Concern

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The world’s largest Relational Database Management Company, Oracle (NYSE:ORCL), is set to release its Q3’17 earnings on March 15th.

Brief Recap Of 1H FY’17

The software-as-a-service and platform-as-service business turned out to be the star performers for Oracle in the first half of FY’17, with 81% constant currency growth in revenues. This was on account of a huge technology shift towards the cloud, which is a lot more cost effective alternative compared to on-premise servers and data centers.  The on-premise software license and product support revenues, which make up around 55% of Oracles’ total revenue, also held strong with 3% growth, as the customer stickiness for Oracle remains intact. However, the legacy software sales, which have been a cause of concern for Oracle since the start of this decade, again dived 15% for the initial six months, as they continue to lose out in the battle against the cloud.

The cloud growth is likely to have continued in Q3 because of the above mentioned reasons. On the other hand, it will be worth noting if there is any slowdown in the fall of legacy software sales, as the license and product support revenues ultimately depend on the new software sales. Although, in Q3 and in the future, the new software sales are likely to continue to fall because of a shift to cloud, but a slower slide will provide ample time for cloud revenues to fill in the gap.

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Continued Slowdown In New Software Sales Can Take A Toll On Updates and Support Revenues

While the new software sales itself are not the biggest contributor to Oracle’s revenues, they can indirectly affect the largest revenue source of software updates and product support revenues in the long term. In fact, over the last 4 quarters, there has been a visible slowdown in the growth rate of license updates and product support revenues which is raising concerns regarding the future growth aspects of the company. If the growth of this segment falls into the negative territory, then the entire burden of overall growth will fall on cloud SaaS, Paas, and IaaS, which combined account for just over $1 billion quarterly revenues as compared to $4.8 billion from license updates and support.

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On A Positive Note, Expansion Of Exadata Cloud Machine Marks Another Stride Toward Cloud Growth

Toward the end of the quarter, Oracle launched Exadata Cloud Machine into database workload, which is a step forward under Oracle’s Cloud at Customer initiative. This brings the benefits of cloud to the companies who are hesitant to shift their data centers out of their premises because of data security reasons. The security of data is one of the primary factors which are acting against the case for cloud presently. The provision of all advanced cloud features on premises bridges the gap between on-premise and cloud, which can further boost Oracle’s fast growing cloud business.

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