Oracle's Q4 delivers continued growth in cloud sales

The software giant reported its SaaS and PaaS revenues were up 66 percent for the fourth quarter of 2016.
Written by Stephanie Condon, Senior Writer

Oracle on Thursday reported earnings for the fourth quarter of fiscal 2016, posting continued momentum in its cloud sales.

The software giant posted non-GAAP earnings of 81 cents a share on revenues of $10.6 billion, close to market expectations of 82 cents a share on sales of $10.47 billion. Non-GAAP net income came to $3.4 billion. Oracle shares were up in after-hours trading.

While its on-premise software revenues were flat at $8.4 billion, Oracle's cloud software as a service (SaaS) and platform as a service (PaaS) revenues came to $690 million, up 66 percent. Total Cloud revenues, including infrastructure as a service (IaaS), were $859 million, up 49 percent in U.S. dollars.

"We dramatically over-achieved again in the cloud," Oracle CEO Safra Catz said on Thursday's earnings call. She noted at as Oracle's SaaS and PaaS business grows, its growth rates are actually going up.

"We are a force to be reckoned with in the cloud," she said.

Oracle's cloud business, which had faced skepticism, came under heavy scrutiny earlier this month when a former employee filed a lawsuit against Oracle. She claimed she was fired after she threatened to blow the whistle on Oracle's allegedly misleading cloud accounting practices. The suit prompted shares to fall, leading to a class-action suit against Oracle.

With respect to Oracle's cloud accounting, Catz said the company is "completely confident it is 100 percent accurate and, if anything, slightly conservative."

Before that controversy erupted, Oracle was touting strong sales growth. At the end of the third fiscal quarter, Catz said its cloud business was in a "hyper-growth phase."

In a statement Thursday, Oracle CTO Larry Ellison said the company expects the "hyper-growth" to continue for the next few years. "That gives us a fighting chance to be the first cloud company to reach $10 billion in SaaS and PaaS revenue," he said.

For the full fiscal year 2016, Oracle reported its total revenues were down 3 percent at $37 billion. However, Cloud SaaS and PaaS revenues for 2016 reached $2.2 billion, up 49 percent in U.S. dollars, while total cloud revenues, including IaaS, reached $2.9 billion, up 36 percent.

Oracle CEO Mark Hurd noted in a statement that the company added more than 1,600 new SaaS customers and more than 2,000 new PaaS customers in Q4.

"In Fusion ERP alone, we added more than 800 new cloud customers," he said. "Today, Oracle has nearly 2,600 Fusion ERP customers in the Oracle Public Cloud -- that's ten-times more cloud ERP customers than Workday."

While Oracle is touting its momentum, it can't dismiss competitors like Workday. Gartner on Thursday released its first-ever Magic Quadrant for Cloud HCM Suites for Midmarket and Large Enterprises, and Workday surpassed Oracle and SAP for its ability to execute and completeness of vision. SAP slightly bested Oracle.

Even so, Ellison on Thursday's call argued that Oracle is growing faster than its competitors because Oracle competes "in virtually every important SaaS area there is," including ERP, HCM, supply chain and manufacturing, and sales automation. By contrast, Salesforce.com is focused on sales automation and customer experience.

"We think that gives us a huge advantage that our footprint is wider," he said.

While SaaS and PaaS are growing very rapidly for Oracle, Ellison said that IaaS represents the "third leg" of Oracle's cloud strategy. Calling its first generation IaaS service data center "more expensive than we liked," he noted that Generation Two "has been built and stocked with computers. He said there's "huge" demand for IaaS from existing SaaS customers and database customers.

SaaS business, meanwhile, grew so quickly in part because of Oracle's "accelerated buying experience," Catz said.

Rolled out in March, the program allows customers to complete a purchase with a click of a button, and Catz said Oracle is the first to offer such a service to enterprise customers. Nearly two-thirds of cloud deals for the quarter were processed using the accelerated buying experience.

As Oracle moves to the cloud, "clearly customers are embracing the move with us," she said.

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