Oracle's Q4: Here are the key takeaways

Cloud sales continue to mount and the next generation of Oracle's flagship database looms.

Oracle's fourth-quarter and year-end numbers are in and have Wall Street impressed, thanks to the better-than-expected numbers the vendor reported for its cloud business. Here's a look at some of the numbers, as well as telling moments from Oracle's earnings conference call.

Cloud Revenue Transition Continues

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The numbers Oracle would like the market to focus on relate to its cloud business, which is growing quickly but still a small percentage of its total revenue. Its Q4 PaaS and SaaS revenue grew 66 percent year-over-year to $690 million, while IaaS rose 2 percent to $169 million.

Oracle's Q4 delivers continued growth in cloud sales

In contrast, new software license sales dropped 12 percent to $2.8 billion. However, Oracle managed to actually increase maintenance revenue by 3 percent, to $4.8 billion. "Attach and renewal rates remain at their usual high levels, as our growing installed base of customers continue to power earnings and cash flow," CEO Safra Catz said in prepared remarks on the call.

It wasn't clear how much other factors, such as customer license audits, are helping Oracle grow maintenance. But given how much larger its on-premises software business remains compared to cloud revenues, preserving maintenance as much as possible clearly remains a crucial task for Oracle.

On those cloud sales: "Let's keep in mind Q4 is Oracle's biggest quarter, and we can count on the Oracle sales machine to be in full swing," says Constellation Research VP and principal analyst Holger Mueller. Moreover, the year-over-year comparison "easier as the machine 'choked' in regards to cloud last year," he adds.

Still, Oracle is facing questions over its cloud numbers. A former employee recently filed a lawsuit against the company, saying she was fired after refusing to inflate Oracle's cloud numbers. Oracle has denied the allegations and plans to countersue. CEO Safra Catz addressed the matter indirectly on the conference call: "As in regard to our cloud revenue accounting, we have reviewed it carefully and are completely confident that it is 100% accurate, and if anything, slightly conservative."

Cloud ERP Is Looking Key

Oracle's cloud ERP business had a pretty good quarter, as CEO Mark Hurd noted on the call:

In ERP, we had 808 new customers in the quarter. I just want to make sure I didn't misspeak -- it's 808 new customers in the quarter. We doubled the FY16 count in Q4. Almost 50% of those customers never had an Oracle app.

That Oracle is finding so many greenfield opportunites for cloud ERP may mean many of the deals are with midmarket companies or new divisions of larger ones. But the acceleration in that part of the business can't be understated.

Oracle's full set of cloud capabilities create a "network effect" that will drive more cloud sales, executive chairman and CTO Larry Ellison said on the call:

So if you have, let's say, your ERP application, and it's an Oracle ERP application, then you want to build a bunch of data warehousing applications on top of the data from your ERP system. In a sense, you feel it's perfectly reasonable to have the ERP system at Oracle, and I'll put the data warehousing situation at Microsoft Azure.

But if you actually look at the pricing--cloud pricing--the one part of cloud that's expensive is moving data out of data centers. That's one thing they charge you a lot of money for. And that's the kind of industry pricing, the way it works.

So there is an advantage built in for us that if we have the ERP data and we have the ERP system. We have a built-in advantage by offering our PaaS and our infrastructure as a service as a set of tools to allow you to build your data warehouses and your data marts using that ERP data.

The Cloud Database Shift

Oracle announced version 12.2 of its flagship database at last year's OpenWorld conference, and while a general availability date hasn't been confirmed, it's expected to be released within a month or two. Ellison noted that as with past database releases, most customers wait until the .2 version of an edition before upgrading, since it's more stable and tested than the initial version.

Features for multitenancy and in-memory have nonethless made version 12.1 "database one of the most rapidly adopted versions in many years," Ellison said. Upon the release of 12.2, expect "I think you'll see early adoption in the cloud," Ellison said:

A typical customer might have said: okay, I'd like to start experimenting with release 12, and I'm going to put it on these product development computers over here. Well, we're encouraging our customers to look at alternatives. Why don't you just use the latest version in the cloud? And why don't you do your experimentation and your testing and application migration and your upgrades in the cloud? It's going to save you some money and allow you to get access even faster, and we think that's what's going to happen.

That's how we would like them to consume it. If they go to the cloud, they save money, and it's easier for them, and we make more money, and it's better for us. So that's what we will be pushing our people. So again, we're incented and the customer is incented to get to the cloud as quickly as we can.

Oracle database shops who haven't adopted version 12 as of yet may indeed now be tempted to make the switch, and in Oracle's cloud. While Ellison insisted customers can save money by doing so, careful planning, negotiations and calculations will need to be made in order to prove that, given Oracle is offering the database in a wide variety of flavors and price points.


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