​Oracle gets its cloud due: Can it sustain it?

Oracle takes a cloud victory lap as analysts and investor cheer the second quarter. CTO Larry Ellison lays out plans to pass Salesforce.

In 24 hours, Oracle went from the land of low expectations about its second quarter results to being a cloud juggernaut that will surpass partner and rival Salesforce.

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The truth is likely to be somewhere in the middle. Oracle's second quarter was expected to be another clunker, but the company's ability to beat revenue expectations and show strong cloud growth had analysts gushing.

Add it up and Oracle's market cap has now eclipsed Intel's by a nice margin.

Following Oracle's second quarter results, CTO Larry Ellison talked up the cloud portfolio, which is massive and covers everything from infrastructure to applications to platforms. In the second quarter, Oracle's cloud revenue was $519 million, up 47 percent from a year ago in constant currency.

The lingering question is whether Oracle's 200-plus cloud services equates to a cohesive option for enterprises or just a bunch of things to buy. Frankly, if you're only aiming to be the No. 1 cloud provider that distinction may not matter. Ellison reiterated that Oracle could give Salesforce a run for No. 1 a few times on an earnings conference call.

Ellison said:

We think we have a good chance of passing them. I don't know if we could pass them or catch them, but it's getting very close. We're in that ballpark.

So we're selling new business at the same rate as the market leader next year, which I think -- again, what we're experiencing is hyper-growth. Salesforce is slowing down; we are speeding up. They're only twice as big as us. In round numbers, they're $4 billion, we're $2 billion.

But we're growing a lot faster. And we have a lot more products. And we have a large install base to sell into. So we think, again I said, I know it's just words, we said we think we can become number one in the cloud. We think we will be number one in the cloud and we will be number one in cloud very quickly.

Ellison continued his cloud lecture:

If you look at our product line versus our competitors, we're Salesforce's only real competitor in sales automation.

We are the leader in marketing automation. We're fighting hard to be the leader in service automation; we're actually better than Salesforce.com.

We're Workday's only real competitor in HCM. And we think we've passed them in HCM, but you can make an argument we're both fighting hard in HCM.

But we're killing Workday in ERP. If you conclude ERP and EPM together, it's planning, budgeting, performance management and the cloud ERP, all of that. We sold 2 1/2 times more customers this past quarter than they've done in the life of their company.

We are the clear leader in mid-range and high-end ERP with no competition from Workday. They're just not there. Or when they're there, they're losing every time.

So we are very strong in HCM. We are very strong in ERP. We're the leader in ERP, we're the leader in marketing, we're the leader in EPM. We are contending for leadership in service automation and in HCM. And we are the guys in second place behind Salesforce in sales force automation.

But every place else except that one segment, that one niche, we're the leader or fighting to be the leader. So we've have got incredible breadth of SaaS products. Now our SaaS products are built on top of Java and the Oracle database, the platform.

And companies want to make extensions to the applications. They want to link the applications to their existing applications, and so on. Using our platform makes a lot more sense than using a proprietary platform from Salesforce.com. We don't think it's a fair fight. By the way, Salesforce.com uses our platform to build their applications. They just can't sell our platform as a part of their service offering to their customers, because they have no license to do so.

The company projected software- and platform-as-a-service growth of 30 percent to 34 percent in constant currency for the third quarter with infrastructure-as-a-service growing 29 percent to 33 percent. Software and cloud revenue growth should be 5 percent to 8 percent in constant currency.

For now analysts are cheering Oracle with the caveat that one quarter of good execution doesn't make a trend. Oracle has still missed more quarters in the last two years than it has made. Oracle also needs its core application and database businesses to remain at least stable for its cloud transition to work. We'll omit hardware from the equation.

Wedbush analysts Steve Koenig said:

We are seeing signs that Oracle's sales capacity additions are becoming more productive, the 12c product cycle is poised to help results, and cloud revenue is accelerating on strong bookings.

He did add that Oracle cloud customers don't appear to be able to add new features as quickly as other SaaS applications.

Cantor Fitzgerald analyst Brian White said:

In our view, Oracle's push into the cloud is the most aggressive of any of the large, global IT vendors in our coverage universe and Oracle has the highest probability of success.... Oracle is a big believer that suite vendors such as itself will ultimately be successful in the SaaS market, similar to what happened in the on-premise enterprise application market.

Brad Reback, an analyst at Stifel, noted:

Looking ahead, Oracle continues to heavily focus on its large and growing cloud opportunity. We believe this is the right strategy. As sales productivity and its cloud assets continue to expand, we expect SaaS/PaaS booking momentum to remain strong and that has the potential to lead to accelerating cloud revenue growth rates

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