The News: Oracle shares fell as much as 3% in extended trading on Monday after the enterprise software maker reported fiscal first-quarter revenue that came in under analysts’ expectations.
Here’s how the company did:
- Earnings: $1.03 per share, adjusted, vs. 97 cents per share as expected by analysts, according to Refinitiv.
- Revenue: $9.73 billion, vs. $9.77 billion as expected by analysts, according to Refinitiv.
Revenue increased by 4% year over year in the quarter, which ended on Aug. 31, according to a statement. In the previous quarter Oracle’s revenue had gone up 8%. Read the full news item on CNBC.
Analyst Take: Oracle has been the recipient of some strong positive momentum over the past month. Its stock has seen all-time highs topping out just over $90.00 following a record run-up to its Q1 earnings. Overall, the strength in the stock is an indicator of growing expectations that have come from the company as it continues to shift from its database roots to a vertically integrated cloud company. The sell-off after the results came in during after-hours trading seems to reflect a bit of disappointment on the softer revenue, but the miss was slight, and overall I consider these numbers to be on target.
Over the past four quarters, Oracle returned to growth amidst a tumultuous 2020 year that has challenged traditional IT business models. In its fourth-quarter for its fiscal 2021 year, Oracle continued its YoY growth with its revenue up 8% during the period reflecting nearly 3x faster growth than its prior period. (YoY). In the most recent quarter, growth came it at about 4%, and CEO Safra Katz guided to a similar outcome for the company during its fiscal Q2, which will end in November.
Breaking Down the Business Segments
Oracle’s business breaks down into four categories. The company’s two biggest revenue buckets, Cloud services, and license support, representing 76% of revenue this quarter and cloud license and on-premise license representing 8% of the company’s revenue, the cloud licensing saw growth this quarter while premise based contracted somewhat considerably. The other two groups, which are both sub 10% of revenue, saw mixed results, with hardware declining 6% while services were up 8% YoY.
Despite the pullback from some of the smaller segments, seeing 84% of its revenue from cloud and services was able to carry Oracle to another quarter of single-digit growth. The cloud services and license support segment delivered $7.371 billion in revenue, growing 6% on an annualized basis coming in slightly below the $7.41 billion consensus among analysts polled by FactSet.
Revenue from its cloud and on-premises licenses came in at $813 million for the quarter, which represented a decline versus last year’s $886 million in the same quarter.
Oracle SaaS and Cloud Continue to Deliver Strong Growth
A continued bright spot for Oracle has come from its cloud applications businesses, which continued their rapid revenue growth with Fusion ERP up 32% and NetSuite ERP up 28%, a continuation of 46% and 26% from the previous providing confidence that momentum is behind continued growth for these cloud-based services. This growth adds to the more than 31,500 Fusion ERP and NetSuite ERP customers in the Oracle Cloud (Q3 ’21 Earnings Metrics).
The company was also able to provide additional details on the growth of its infrastructure business and overall cloud business pointing to revenue for its IaaS and SaaS businesses now usurping $2.5 billion for the quarter equating to a $10 billion cloud run-rate. A strong indicator that the cloud business has found its legs.
There is still a bit of mystery with these numbers and how they split up between the different offerings, but I’ve spent enough time analyzing the various cloud providers to note that none are breaking out their numbers purely by SaaS, PaaS, IaaS, etc. Cloud is increasingly all encompassing. Especially when you roll in hybrid cloud.
Significant Customer Wins in Q1 for Oracle:
In Q4 the company saw growing adoption of its SaaS portfolio, including Netsuite, Fusion Apps, and Oracle Cloud Infrastructure, including Cloud@Customer. I was impressed by the hybrid cloud wins as Cloud@Customer is gaining momentum with some of the biggest companies in financial services like Deutsche Bank (Below).
A few of the highlighted customer wins from its earnings release: (abbreviated)
- Deutsche Bank: The agreement will see Deutsche Bank upgrade their existing database systems and migrate the bulk of their Oracle Database estate to Oracle Exadata Cloud@Customer to support applications that either will not move to the public cloud or may in the future. This will provide a dedicated platform to support and scale the bank’s existing mission-critical systems and services including trading, payments processing, risk and capital planning, and regulatory reporting.
- State of Utah: Already a user of Oracle Exadata, Utah Department of Technology Services (DTS) has selected Oracle Cloud@Customer to migrate systems and applications without any downtime for state agencies, take advantage of the automation offered by Oracle Cloud Infrastructure, and create a roadmap for additional cloud migration.
- Qatar Airways: The airline selected Oracle Fusion Cloud EPM to significantly reduce financial planning time and resource demands while gaining insights to help make strategic financial decisions.
- Acer: Selected Oracle Fusion Cloud EPM hoping to save staff time related to complex data collection and report preparation, while also improving the quality and accuracy of reporting.
- Humana: Chose Oracle Fusion Cloud ERP and EPM to modernize their back-office systems and support their evolving business.
- Skanska: Global construction and development company Skanska went live in April 2021 with Oracle Fusion Cloud ERP and HCM.
Each quarter I review the various customer wins and find value in learning details of Oracle’s wins across its portfolio and providing concrete examples of what solutions across its portfolio are being adopted. Customer proof serves as an indicator of a company’s trajectory, especially as Oracle seeks to prove itself as an impact player in the cloud.
Overall Impressions of Oracle’s Earnings (Q1 FY 2022)
Oracle’s 4% growth this quarter marks a slight drop from last quarter’s 8% growth, but marks a steady climb in revenue. I continue to see a more bullish outlook as material growth is coming from its SaaS and Cloud portfolio, and this quarter’s update should encourage investors and customers alike as Oracle’s cloud investments are starting to be more visible in the earnings results.
For its fiscal ’22 Q1 guidance, the company said it is expecting fiscal first-quarter adjusted earnings of $1.09-$1.13 per share and the equivalent of 3% – 5% revenue growth. I believe this guidance is conservative but in the target range as recent guidance has been consistently in range. I also expect the cloud and SaaS growth areas like Fusion and Netsuite and Gen2 Cloud + autonomous database to help carry the growth number for Q2 once again–Which is what Oracle and its shareholders should be hoping to see.
This quarter’s result continues a string of encouraging earnings reports from Oracle, with consistent YoY growth a bit of a sideshow to the eyes that are watching the company’s cloud business so closely. I do believe the company has finally turned the corner for its cloud efforts, and the results should accelerate going forward.
Futurum Research provides industry research and analysis. These columns are for educational purposes only and should not be considered in any way investment advice. Neither the Author or Futurum Research holds any positions in any companies mentioned in this article.
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Image Credit: Oracle
Daniel Newman is the Principal Analyst of Futurum Research and the CEO of Broadsuite Media Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise. Read Full Bio