By Jay Greene
Oracle Corp.'s stock hasn't kept pace with some cloud rivals for
years as the software company lagged behind in transitioning its
business to the cloud.
That may have begun to change Wednesday after Oracle reported
earnings that topped Wall Street's modest forecasts, sending the
stock up more than 10% in after hours trading.
The Redwood City, Calif., company said its fiscal fourth-quarter
net rose 15% to $3.23 billion, or 76 a share, from $2.81 billion,
or 66 cents a share, a year earlier. The company said adjusted
per-share earnings, which commonly exclude stock-based compensation
and other items, were 89 cents.
Revenue rose 2.8% to $10.89 billion.
According to estimates gathered by S&P Global Market
Intelligence, analysts expected Oracle to earn 78 cents a share on
an adjusted basis, on revenue of $10.45 billion.
Analysts were particularly impressed with Oracle's success in
bringing in new customers to its web-based, on-demand computing
services. Annually recurring revenue, or ARR, from these new
customers hit $855 million in the quarter, and topped $2 billion
for year, the company said.
"It's the best quarter we have ever had," Oracle co-Chief
Executive Mark Hurd said during a conference call with analysts.
"We had a goal of $2 billion in ARR; we finished with nearly $2.1
billion. Next year, we will sell more."
At the same time, Oracle is altering the way it reports on its
cloud business. The company is mixing its nascent
infrastructure-as-a-service business, where it provides computing
resources and storage on demand, with its more tenured business of
selling access to app-management and data analytics tools, called
platform-as-a-service.
In its fiscal fourth quarter, Oracle posted solid results in its
cloud-infrastructure business, where it competes against leaders
Amazon.com Inc., Microsoft Corp. and Alphabet Inc.'s Google.
Revenue from the business rose 23% to $208 million.
The company's platform-as-a-service business, combined with its
other cloud business that sells access to applications -- known as
software-as-a-service -- saw revenue climb 67% to $1.15 billion
ended May 31.
On a call with analysts, co-CEO Safra Catz said Oracle combined
results from its platform and infrastructure cloud businesses
because "synergies and cross-selling between these two businesses
is very high."
Combining results from the two business will make it harder to
measure Oracle's success in the cloud-infrastructure market. Larry
Ellison, Oracle's co-founder and executive chairman, made building
the company's cloud-infrastructure business a key mission, saying
last summer "Amazon's lead is over" after introducing Oracle's
latest technology for the market.
Amazon, though, continues to pull away. Its Amazon Web Services
unit, whose net sales are largely comprised of its
cloud-infrastructure business, grew 43% in the most recent quarter
to $3.66 billion.
To keep pace with rivals in the cloud-infrastructure market,
Oracle will need to meaningfully expand its capital spending and
operating expenses, Stifel Nicolaus & Co. analyst Brad Reback
recently wrote in a report.
Last year alone, Amazon, Microsoft and Google spent a combined
$31.54 billion in 2016 on capital expenditures and leases, much of
that on data centers to deliver cloud-infrastructure services.
Oracle spent $2.02 billion on capital expenditures in its fiscal
year, up from $1.19 billion a year earlier. That, in part, led to
operating margins of 34%, compared with 43% in the previous fiscal
year. The company has said it doesn't believe it needs to spend as
much as rivals to catch up, arguing its technology is superior.
Growth in Oracle's entire cloud business is outpacing the
decline in its legacy business of selling licenses to software
customers run on their own servers.
The cloud business grew $502 million year-over-year while
Oracle's new software-license revenue fell $140 million. It is the
fourth-consecutive quarter in which Oracle's cloud-revenue gains
outpaced declines in its legacy software business.
Over all, revenue from new software licenses fell 5% to $2.63
billion.
The biggest piece of Oracle's software business remains its
massive software-license updates and product-support operations.
That segment generated $4.9 billion in revenue, a 2% gain from a
year earlier.
Write to Jay Greene at Jay.Greene@wsj.com
(END) Dow Jones Newswires
June 21, 2017 19:11 ET (23:11 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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