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Oracle Q2 strong on cloud, SaaS momentum

The company churned out strong cloud revenue growth with its autonomous database on deck. But total cloud growth in the third quarter will be tougher due to the anniversary of the NetSuite purchase.

Oracle delivered strong fiscal second quarter results that topped expectations on earnings and revenue as well as cloud revenue.

The company reported second quarter net income of $2.2 billion, or 52 cents a share, on revenue of $9.6 billion, up 6 percent from a year ago. Non-GAAP earnings for the quarter were 70 cents a share.

Wall Street was looking for second quarter earnings of 68 cents a share on revenue of $9.57 billion. Ahead of the report, analysts were closely watching cloud bookings. The one-year anniversary of the NetSuite acquisition passed Nov. 7 making software-as-a-service growth in the quarters ahead more difficult.

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JMP Securities analyst Patrick Walravens said investors were looking for cloud bookings growth of more than 40 percent with revenue growth in the low- to mid-40 percent range. Analysts were also interested in data points that show Oracle is effectively competing with Amazon Web Services, Google and Microsoft on infrastructure as a service.

Oracle's total cloud revenue was $1.5 billion, up 44 percent from a year ago. Of that sum, $1.1 billion in sales was attributed to software as a service with platform- and infrastructure-as-a-service at $396 million, up 21 percent from a year ago.

Cloud and on-premise software revenue was $7.8 billion for the quarter.

Oracle said its cloud business was "gathering momentum" and CEO Safra Catz expected that business to perform well. Mark Hurd, co-CEO, also said that Fusion ERP and Fusion HCM SaaS suite sales were up 65 percent in the quarter. On a conference call with analysts, Hurd also addressed database market share.

Meanwhile, Hurd said that Oracle was holding its database share and took some jabs at the competition. Hurd said:

Let me tell you who's not moving off of Oracle. A company you've heard of that gave us another $50 million this last quarter. That company is Amazon. They're not moving off of Oracle. Salesforce isn't moving off of Oracle. Our competitors, who have [no reason] to like us very much, continue to invest in and run their entire business on Oracle. I don't know who's moving on from Oracle. Maybe Mark knows, maybe Safra does. But Amazon, you think Amazon would really want to move. Let me tell you someone else who is not moving out of Oracle: SAP. They have the database called HANA. They'd like to move SuccessFactors. They've been trying to move off of Oracle for 5 or 6 years. All SAP large customers run on Oracle. Amazon continues to buy Oracle technology to run their business. Salesforce runs entirely on Oracle. Go ahead, you tell me who's moving off of Oracle.

Going forward, Oracle and the analysts that cover the company expect the company to get a boost from its autonomous database outlined at Oracle OpenWorld.

On Oracle's autonomous database, CTO Larry Ellison said it is on track for January launch. He said:

We expect this new technology to dramatically accelerate the growth of our PaaS and SaaS businesses and keep our database license business strong as well. People are buying database licenses to run on-premise and in the cloud. You can run them either place options around on-premise and in the cloud.

As for the outlook, Catz said that third quarter revenue growth will be between 2 percent to 4 percent with non-GAAP earnings of 68 cents a share to 70 cents a share in constant currency. Including currency fluctuations, Oracle projected earnings of 71 cents a share to 73 cents a share in line with Wall Street estimates.

Total cloud revenue in the third quarter is expected to grow 21 percent to 25 percent, said Catz.

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