While Oracle’s March 10 earnings call will be remembered primarily for Larry Ellison’s gleeful disclosure of 100 customer wins versus SAP, CEO Safra Catz quietly offered 6 numbers indicating the best is yet to come for Oracle Cloud.
Yes, some investors saw something in Oracle’s overall numbers that they didn’t like and Oracle shares took a pretty heavy hit. But every one of the cloud numbers that Oracle disclosed indicates a business that’s growing very well in some areas and extremely well in others.
Confusion over Fusion?
Part of the confusion could be that Oracle chooses not to break out specific cloud numbers. Instead, it rolls together some cloud and non-cloud revenue into a big glob that it calls “cloud services and license support revenue”—and since that total is by far the biggest chunk of Oracle revenue each quarter, it attracts the most attention.
Plus, since the first two words in that glob are “cloud services,” perhaps some people think that’s the quarterly measure of Oracle’s cloud growth. So, with “cloud services and license support revenue” growing at 5% to $7.3 billion in Oracle’s fiscal Q3, perhaps some folks interpreted that to mean that Oracle’s cloud business is growing at only 5%. That certainly seems to be the case with these CNBC guys.
Deciphering the clues
But as Catz rolled out other details on the call, she offered some clues that, when pulled together, make it pretty clear that Oracle in fact is one of the 3 or 4 fastest-growing cloud providers on the Cloud Wars Top 10.
So, while Oracle’s not doing itself any favors with its less-than-clear categorization of its various products and their associated revenue figures, that situation does offer your humble correspondent the opportunity to try to connect some dots left artfully by Catz and see if we can assemble an accurate picture of the growth rate of Oracle’s cloud business.
“Strategic back-office cloud applications” up 24%.
Catz revealed two very interesting sets of details about these SaaS apps, which include Fusion ERP, NetSuite ERP and Fusion HCM.
- First, they generated $1 billion in revenue in the quarter ended Feb. 28, yielding what Catz called “annualized revenue of $4 billion.”
- The growth rates were Fusion ERP 27%, NetSuite ERP 22% and Fusion HCM 21%.
This category and the $4-billion annualized run rate does not include Fusion Advertising and CX revenue, or revenue from cloud versions of Oracle’s vertical-market businesses.
“Infrastructure cloud services” had Q3 revenue of more than $500 million.
Catz described the infrastructure side of Oracle’s cloud business as having “an annualized revenue of more than $2 billion” and broke out these growth rates:
- Gen2 OCI was up 123%
- Within that Gen2 OCI category, Autonomous Database was up 55%
- Revenue for Oracle’s [email protected] private-cloud solutions was up more than 200% “but on small numbers.”
So, broadly speaking, Oracle’s cloud-infrastructure business had Q3 revenue of $500 million and is growing at very high rates.
The “strategic back-office cloud applications” growth rate will rise in Q4.
Catz called out two categories that will grow faster in Q4 (ending May 31) than they did in Q3: “Cloud service and license support will grow faster than in Q3, as will strategic back-office cloud applications.”
Future cloud business looks strong: RPO of $35.3 billion.
“The remaining performance obligation or RPO balance is $35.3 billion, up 2% in constant currency versus last year,” Catz said. She added that about 61% of that will be recognized as revenue within the next 12 months.
Demand for OCI services continues to outpace supply.
The inability to keep up with a demand is a problem, but in this situation I would say it qualifies as a “good” problem.
Catz: “As I mentioned last quarter, we experienced capacity constraints for OCI cloud services as customer workloads expanded dramatically. In addition, we continue to land many new customers, including ISVs, and we have some very large users coming online shortly that will require significant amounts of capacity. As a result, we’re investing aggressively this quarter, this Q4, in both OpEx and CapEx to prepare for this increase in cloud consumption and associated revenue in FY 2022.”
What does Oracle do faster than any other company on the S&P 500?
Offering a very tangible example of the advanced capabilities of the financials applications within Oracle’s Fusion ERP, Catz said, “We are again reporting earnings 10 days after the end of the fiscal quarter, faster than any other company in the S&P 500. Fusion Cloud ERP enables us to understand our business performance sooner and with greater insight, which is an advantage our customers are rapidly beginning to appreciate.”
Oracle always goes its own way, even when that can appear to be the hard way. So to understand Oracle, you have to be willing to view the company through a different lens. Using that perspective, here’s what I see:
- a total cloud business of about $6.5 billion on an annualized run rate, with the vast majority of that coming from cloud ERP and cloud HCM ($4 billion) and from OCI ($2 billion);
- very high growth rates for those two big cloud components: those “strategic back-office cloud apps” grew 24% in Q3 and will grow at a higher rate in Q4, and the cloud-infrastructure businesses, led by OCI, appear to be growing in triple digits; and
- demand outstripping supply in spite of the company’s rapid buildout of data centers around the globe—recall that 3 months ago, Ellison said Oracle’s rapid buildout had given it more cloud data centers than Amazon’s AWS.
As you assess Oracle’s cloud business, don’t be distracted by the companywide results—peer through the haze and see what’s really going on with the Oracle Cloud.
Because in the cloud, Oracle has a growth profile that a whole lot of companies would love to have.
Disclosure: at the time of this writing, Oracle and SAP were among the many clients of Cloud Wars Media LLC and/or Evans Strategic Communications LLC.
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