Cloud and SaaS boost Oracle sales, but competition drives up costs

Larry Ellison (Oracle)

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Cloud services and software-as-a-service (SaaS) application sales boosted Oracle’s revenue for its latest fiscal quarter, but the price of keeping up with major hyperscale cloud vendors dragged down overall profit .

In a call with analysts after the earnings announcement, Oracle President and CTO Larry Ellison named a long list of high-profile customers the company had recently signed on.

In the financial services sector, Oracle has signed TD Bank, Silicon Valley Bank, Societe Generale in France, and the company plans to strike a deal with BNP Paribas soon, Ellison said, according to a transcript of Looking for Alpha.

New customers for enterprise resource planning (ERP) and HCM (human capital management) software include Tata Steel, Rogers Communications, BAE Systems, Canon and Zoom, Ellison said.

During the conference call, when asked about a report of Reuters who said Oracle was about to sign a deal with TikTok that would have all of the video-oriented social network’s data in the US hosted by Oracle – and thus take business out of Google, where it currently stores some data – CEO of Oracle Safra Catz was coy and said Oracle shares “a good relationship” with the company.

Oracle’s User Base Grows

Oracle had results to brag about, in terms of growing its cloud user base.

Cloud (IaaS plus SaaS) revenue for Oracle’s third quarter, ended February 28, was US$2.8 billion – including the effect of currency fluctuations, which lower dollar sales figures for global companies when the dollar is strong as it is now, which is up a healthy 24% over the prior year period. That brings full-year cloud revenue run rate to $11.2 billion, up 26%, Catz noted.

“This is also the highest organic growth rate since we began our journey to the cloud. We saw widespread outperformance across all segments. And for the first time in more than 10 years, all segments of our business saw growth,” Catz said.

Revenues and infrastructure use, in particular, have also increased. “Excluding legacy hosting services, cloud infrastructure services grew by more than 60%. And I expect the infrastructure revenue growth rate to increase over time. Consumption of OCI, which includes an autonomous database, grew 93%, also higher than last quarter,” Catz said.

While this cloud growth is good news for Oracle, it still lags market leaders Microsoft, AWS, and Google. And Oracle has tough competition ahead. For example, in comparison, Microsoft reported $22.1 billion in cloud revenue last quarter, up 32% year over year.

A big problem for Oracle is that it’s expensive to maintain the momentum of its own cloud growth.

RD, service expenses increase

While overall revenue, including licensing services and support, increased 4% year over year to $10.5 billion, net income fell 54% to 2. $3 billion.

The main reasons for the decline are operating expenses for cloud services and licensing support, which increased 23% to $1.3 billion; sales and marketing expenses, which increased 5% to $2 billion, and R&D costs, which increased 12% to $1.8 billion.

Despite the challenge of keeping up with the competition, Ellison predicts an increase in demand and predicts an acceleration in the adoption of Oracle’s cloud offerings.

“So I think it’s kind of like the year 2000 like a pandemic boom, people are rushing to access the cloud, and it’s going to slow down after that? Now that the pandemic, thank God, it is starting to recede. On the contrary, we are really still in the early days,” Ellison said.

“Even though we now have 10,000 customers in Oracle ERP Fusion, another – nearly 30,000 customers in total, including NetSuite, I still think we’re in the very early days. It’s just getting faster and faster. I mean growth – our growth is accelerating, accelerating, accelerating.

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