Oracle talks up cloud revenue growth in the face of flat Q3 sales

Database giant Oracle hails a rise in cloud sales, as overall revenue remains flat in the third quarter - for which it blames a strong US dollar

Oracle blamed a strengthening US dollar for the lack of revenue growth in its latest set of financial results, while hailing growth in cloud sales as the high point of its third quarter.

The database giant posted revenue of $9.3bn for the three months to 28 February 2015, which was on a par with the $9.6bn it banked during the previous quarter. Oracle said this figure would have been 6% higher if the strength of the US dollar had remained unchanged.

As in Q2, Oracle was keen to talk up the growth of its off-premise operations during the most recent quarter, with revenue from its software and cloud division accounting for $7.2bn of the total.

This was up 1%, but Oracle claimed this figure would be 7% higher if the contribution made by the unfavourable currency rates was disregarded.  

Drilling down into its cloud results, the company’s software-as-a-service (SaaS) and platform-as-a-service (PaaS) revenue grew 30% to $372m, or by 34% if – once again – the currency fluctuations that blighted its third quarter were taken into consideration.

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Oracle's SaaS and PaaS revenues

Oracle CEO, Mark Hurd, said the supplier secured nearly $200m in new SaaS and PaaS business in Q3 measured on an annual recurring revenue basis. He said this equates to a total of 800 new customer wins on the SaaS side alone.  

“In Q4, we expect to sell over $300m of new SaaS and PaaS annual recurring revenue. That means we have a real chance to sell more SaaS and PaaS annual recurring revenue,” he said.

This is around $50m higher than previous estimates by the firm.

“That means we have a real chance to sell more SaaS and PaaS new business this coming quarter than any other cloud services provider," said Hurd.

“I think our hyper-growth in the cloud comes as a big surprise to a lot of people.”

Larry Ellison, Oracle chairman and CTO, said the results suggest the firm is well on its way to hitting its target of accruing $1bn worth of new SaaS and PaaS business in 2015.

“Salesforce.com has announced that it also expects to add about $1bn of new SaaS and PaaS business this year. So it’s going to be a close race who sells more in the cloud this year, us or them. Stay tuned,” he said.

Ellison takes swipe at competitors

This fighting talk continued during the results conference call, transcribed by Seeking Alpha. Ellison said previous estimates about how Oracle’s cloud performance would compare with Salesforce’s this year were too conservative.

“Our cloud business is growing a lot faster than even I expected. Our cloud booking are now growing at over 100% this year, so I’d like to revise my prediction,” said Ellison.

“I now believe Oracle will sell more new SaaS and PaaS business than Salesforce.com in this current calendar year.”

Hurd also used his time on the call to run down Oracle’s rivals in the cloud enterprise resource planning (ERP) market, namely SAP and Workday.

“Our ERP SaaS install base is multiple the size of Workday. We’re adding customers at more than 10 times the rate of Workday. Less than 25% of our ERP SaaS wins involve any on premise Oracle ERP customer, meaning that over 75% are net new to Oracle,” said Hurd.

“I would give you a stat on SAP, but we never see them in cloud ERP.”

Analyst reaction to Oracle results

Despite Oracle’s bullish statements, Angela Eager, research director for enterprise software and applications services at IT analyst house TechMarketView, said the firm still has a long way to go before cloud can be classed a major source of its revenue.

“Cut through the hyperbole and competitor bashing and Oracle’s Q3 results showed continued cloud progress with combined SaaS/PaaS revenue up 29% year-on-year, but remember that is from a low base,” Eager said.

“It has a long way to go before cloud becomes a major source of revenue – $527m of cloud revenue stands against total Q3 revenue of $9.3bn, which was flat year-on-year and slightly short on street expectation.

“The question now is over the rate at which cloud revenue can replace licence revenue and that will be a watching game – but it will take several quarters yet to prove the emerging pattern.”

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