Business software and networking major Oracle Corporation today said its revenues in fiscal 2017 Q1 were $8.6 billion (+2 percent). Growth in Cloud business outpaced declined in license revenue, says a research report from TBR.
Cloud plus On-Premise Software Revenues were $6.8 billion (+5%)
Cloud SaaS and PaaS revenues were $798 million (+77 %)
Cloud Revenues, including IaaS were $969 million (+59%)
“This year we are on track to sell more than $2 billion of SaaS and PaaS annually recurring revenue,” said Oracle CEO, Mark Hurd. “This will be the second year in a row that Oracle has sold more SaaS and PaaS than any cloud services provider.”
Oracle added more than 750 new SaaS customers including 344 new SaaS Fusion ERP customers in Q1 – that’s more ERP customers than Workday has sold in the history of their company.
At Oracle OpenWorld next week, the technology company will introduce the second generation of Infrastructure as a Service.
Larry Ellison, Oracle Chairman and CTO, said: “Our Generation2 IaaS delivers twice the compute, twice the memory, four times the storage and ten times more I/O at a 20 percent lower price than Amazon Web Services. IaaS represents a huge new cloud opportunity for Oracle to layer on top of our rapidly growing SaaS and PaaS businesses.”
Analyst comments on Oracle revenue
Meaghan McGrath, analyst at TBR, said Cloud growth finally outpaces license declines as Oracle continues acquisitions.
Oracle remains unfazed by declines across its professional services, hardware and new software license revenue streams, instead focusing on the positive growth in cloud segments and software license and update support, all of which led to year-to-year growth of less than 2 percent for the firm.
Cloud SaaS and PaaS, the segment that Oracle has put significant financial investment, messaging and sales efforts behind, grew 77 percent year-to-year to $798 million in 3Q16 (fiscal 1Q17 for the company), with execution in the U.S. exceeding expectations and ‘Brexit’ causing unanticipated headwinds.
Although Oracle CEO Safra Catz noted that organic SaaS & PaaS growth has accelerated for seven straight quarters, the assertion that this growth was only helped a little by acquisitions is misleading when faced with the fact that Opower and Textura together contributed close to $45 million of the $108 million sequential increase in the segment.
TBR expects that the coming quarter will see similar acquisition-related SaaS & PaaS revenue increases, as the closing of the NetSuite acquisition would only contribute partial-quarter revenues and growth from PaaS products announced at Oracle OpenWorld like the Oracle Database 12c Release 2 (Database 12.2) and Oracle MySQL Cloud Service will only offer a full-quarter impact in F3Q17.
Even faced with accretive NetSuite revenue and the expected acceleration of customers moving to cloud from the cloud-only-at-first Database 12.2 launch, TBR anticipates that Oracle will need to initiate other accretive acquisition(s) to achieve its $10 billion annual SaaS and PaaS revenue goal over the course of the next two fiscal years. As the company stands now, its $3.2 billion run rate will only reach around $4 billion with the addition of NetSuite’s last reported $721 million subscription run rate. Barring other substantial acquisitions, Oracle’s Database 12.2 release and other organic growth efforts would have to more than double the Cloud SaaS and PaaS revenue stream to execute on the $10 billion goal before Salesforce reaches it (who achieved a $7.5 billion run rate at the end of July).
Oracle’s quite quarter precedes OpenWorld announcements
Aside from the NetSuite acquisition announcement, Oracle’s fiscal first quarter and earnings call were relatively uneventful, as the company stashed up on product and strategy announcements for its annual conference, Oracle OpenWorld, which starts only days after the quarter’s earnings call this year.
Undoubtedly, Oracle’s cloud capabilities will remain the central basis on which announcements and strategy roadmaps presented at Oracle OpenWorld 2016 will build. More specifically, however, TBR expects Oracle to focus its time in the lime light on its Oracle Cloud Platform advancements, particularly Database 12.2, and the infrastructure improvements that will help it better compete against IaaS leader Amazon Web Services.
We anticipate that customers will voice both praise and criticism around the database update that is only being launched in the cloud at first, before later becoming available on-premises. Though this tactic aims to get more customers to move to the Oracle Cloud, TBR believes that Oracle will need to be sensitive to its on-premises customers not yet ready to move to the cloud, but in need of the product updates that falls within their maintenance agreements.
Though less certain to be a major point at the event, a solid industry-oriented cloud application storyline would provide Oracle a basis on which to accelerate adoption of applications in a highly competitive market, as Oracle aims fiscal 2017 at making headway on its goal of $10 billion in annual SaaS and PaaS revenue.
TBR believes Oracle has an advantage in its base of largely acquired, industry-specific software expertise, and we have seen early translation of these differentiating capabilities to the cloud portfolio.
