Mark Hurd's cloud blizzard doesn't alter the short range weather forecast for Oracle

Profile picture for user slauchlan By Stuart Lauchlan December 16, 2015
Summary:
The cloud business is growing, the on premise business is declining - mixed fortunes still for Oracle as the transition to the new world order continues.

mark hurd oow17
Mark Hurd

Two different stories emerged from Oracle’s Q2 numbers yesterday.

One, emphasized by CEO Safra Catz, is the story of the ongoing transition to becoming a cloud business, bolstered by a 26% rise in cloud-related business, with Software-as-a-Service (SaaS) and Platform-as-a-Service (PaaS) leading the way.

The other story relates to the 71% of Oracle revenue that still comes from on premise software. Here, it’s s case of a 7% decline, which Catz categorised as “better than expected”. Then there’s the 10% decline in hardware revenues to factor in.

Add to this, an overall profit dip of 12% to $2.2 billion on quarterly revenues down 6% to $9 billion and you’ve got a very mixed bag for Oracle, reflected by the stock price rising briefly, then falling back as Wall Street picked its way through the results.

The big question for investors at this point is whether the worst of the transitional impact of the cloud shift is now behind Oracle or whether there’s more to come?

Blizzard

For Catz the glass is inevitably half full as she predicted:

The bookings growth that we have been experiencing will now translate into a significant acceleration in SaaS and PaaS revenue growth in Q3, where we could hit 50% revenue growth and in Q4 where it should be even higher.

Her fellow CEO Mark Hurd was in typically sabre-rattling mode, claiming that Oracle is accelerating past the cloud pure plays:

Our billings grew 68%. Salesforce grew 21% and Workday 41%, we grew 68%.

He reeled off what he admitted was “a blizzard of numbers” to back up his boast, including:

  • 10,000 overall cloud customers.
  • 857 new SaaS customers during the quarter.
  • 1,343 new PaaS customer for the same period.
  • 720 customer ‘expansions’.
  • 211 new HCM customers..
  • 409 new customer experience customers.
  • 311 new ERP customers.

In ERP, he added:

More than half of our Q2 wins did not have Oracle on-premise apps…in one quarter, we sold more net new customers than Workday did in its lifetime.

CTO Larry Ellison picked up on the ERP theme, stating that:

Oracle is the first company to market a complete cloud ERP suite from mid-size and large enterprises. By pioneering this market, we have become the ERP market leader with over 1,500 cloud ERP customers. Cloud ERP is now our fastest growing SaaS application suite.

(Some of that claimed ‘first’ status might come as a surprise to Ellison’s ‘other company’, NetSuite where he remains a major investor, but that’s by-the-by.)

But the overriding message coming from all three execs was ‘things can only get better from here on in’. Or as Hurd articulated it:

Our pipeline, I can’t come up with a better analytical statement than just huge. Our pipeline now is multiple billions of dollars, let me give you more color. If I look at the next six months, our pipeline of things that are in the next six months funnel, you have a multi-billion dollar funnel and our conversion rate is increased.

There’s also the continued fleshing out of the portfolio to come to fuel growth, he added, citing ERP as a case in point:

The good news about ERP or ERP suite is it’s still not available. It’s just going into other geographies. So with the last release we had, we now brought on manufacturing and supply chain. We’re now releasing the product for sale, for example, in Brazil and some European countries. So we actually get some geographic expansion with the last release we had.

So this is actually good news. The strong in this case actually get stronger.

My take

With software licences and related maintenance still accounting for the lion’s share of Oracle business - and each declining, 18% and 2% respectively - the longed-for cloud crossover point has clearly not been reached yet. While cloud-related numbers will undoubtedly continue to rise, the on premise decline will also continue, suggesting that the short term outlook will remain rocky.

But this is a long game and Oracle’s taken some pragmatic decisions to ensure that it remains a player in a changing market. That crossover point will come eventually. Wall Street just needs to keep its nerve on this one.

The other striking thing, for long-term Oracle watchers at any rate, was the incredibly low key contribution from Ellison to the analyst conference call. It was Hurd who was pushed out to field questions, with his ‘blizzard’ of numbers being accompanied by a ‘tornado’ of words, while Catz crunched the numbers.

There may be nothing significant in this in terms of the future, but to what used to be called “experienced Kremlin watchers”, it was an interesting dynamic to observe.

 

Disclosure - at time of writing, Oracle, Salesforce and Workday are premier partners of diginomica.