Oracle Rises to Record as Cloud Services Finally Take OffBy
Fast-growing market pits company against Amazon, Salesforce
New offerings help offset declines in legacy software licenses
Oracle Corp. shares soared to a record Thursday after the maker of database software signaled growing demand for cloud-based services that compete with Amazon.com Inc. and Salesforce.com Inc.
As it seeks to take on formidable rivals in the fast-growing market for cloud services, Oracle said revenue in that business grew 62 percent in the third quarter. Meanwhile, new software licenses, a measure that’s tied to Oracle’s traditional on-premise software offerings, declined 16 percent. Overall, the Redwood City, California-based company reported adjusted profit and sales in the quarter that beat analysts’ estimates.
The earnings report marked three straight quarters of revenue gains after more than a year of declines. Oracle has been adding products and pushing customers toward its cloud-based business software and services, which offer computing and storage power from remote sites. Oracle’s infrastructure offering, a product that goes head-to-head with Amazon Web Services, will eventually be the software company’s biggest cloud business, Executive Chairman Larry Ellison said.
The shares rose as much as 9 percent Thursday in New York, the biggest intraday jump in more than two years and sending the stock to a record $46.94. They had gained 12 percent so far this year through Wednesday.
“These results show a nice upward inflection in the overall business as new cloud revenues are more than offsetting the declines in software license sales," Rodney Nelson, an analyst at Morningstar, said via email. That performance and Ellison’s comments may "be fueling some additional optimism around the transition,” he said.
Net income in the recent quarter rose 4.5 percent to $2.24 billion, Oracle said. The company also raised its quarterly cash dividend to 19 cents a share, up from 15 cents. Profit before certain items was 69 cents a share, compared with an average estimate of 62 cents. Adjusted sales rose 2.9 percent to $9.27 billion in the period that ended Feb. 28. On average, analysts had projected $9.26 billion, according to data compiled by Bloomberg.
On a conference call after the report Wednesday Ellison said to expect some large deals for customers moving databases to the "infrastructure-as-a-service" business, the company’s Amazon competitor that provides core computing power and storage. Ellison said his service has technological advantages and he expects big things from the lineup.
"We are now in position to help our hundreds of thousands of database customers move millions of Oracle databases to our infrastructure-as-a-service cloud," Ellison said. "And before long, infrastructure-as-a-service will become Oracle’s largest cloud business."
Chief Executive Officer Safra Catz also expressed optimism about the cloud. She said that piece of the business should grow 25 percent to 29 percent in the current quarter, on an adjusted basis and measured in constant currency. The other part of Oracle’s cloud business, which includes applications for human resources and finances, should grow 69 percent to 73 percent, she said on the call.
Overall, she expects fourth-quarter adjusted sales to range from a decline of 1 percent to a gain of 2 percent, based on constant currency. Adjusted earnings are forecast to be 78 cents to 82 cents a share.
The third quarter was the first full period since the company acquired NetSuite Inc., a provider of cloud-based financial services, for $9.3 billion, one of its largest-ever deals. NetSuite is one of the biggest pure providers of these modern software features, having carved out a leadership position in the market for tools that manage customers’ core financials. Adjusted sales in the part of the cloud business that includes NetSuite rose 85 percent.
“It appears that business activity was solid, particularly for cloud,” John DiFucci, an analyst at Jefferies LLC, said in a research note before the results were released. Oracle’s “approach to transitioning its business to cloud has taken a more healthy form.”