Powered by continued strong gains in its cloud business, Oracle reported better-than-expected earnings and revenue growth for the second quarter of its 2018 fiscal year.
Oracle’s net income in the quarter, which ended November 30, rose 10% compared with the year-earlier quarter, to $2.23 billion, on 6% higher revenue of $9.62 billion. Leading the way was the company’s cloud business, which grew 44% in the quarter, to $1.52 billion.
A particularly robust area is the company’s cloud software-as-a-service (SaaS) business, whose revenue rose 55% in the quarter, to $1.12 billion. The gross profit margin for that SaaS business continues to expand as well, to 65% in the second quarter, up from 56% in the year-earlier quarter. “We expect to see further improvement in FY2018, and we remain committed to our goal of 80% [non-GAAP] SaaS gross margins,” CEO Safra Catz said on the company’s call with financial analysts on December 14.
In the largest and “most important” enterprise SaaS segment, ERP, Oracle grew revenue significantly in the quarter. Oracle’s ERP business, which includes financial, manufacturing, and other core business software, is now on a $1.4 billion annual run rate, CEO Mark Hurd said during the earnings call.
Among Oracle’s ERP Cloud customer wins in the quarter were Adventist Health, Banco Santander, the city of Las Vegas, Emirates Airlines, Johnson Controls, Nissan Motor, and Sumitomo Heavy Industries. Most of Oracle’s cloud ERP customers, Hurd noted, are new to Oracle in this segment—either they’re switching from SAP and other competitors, or they’re using ERP for the first time via the cloud model. “As customers get more aware of the difference between traditional on-premises ERP and a new modern SaaS ERP, we get a chance now to compete for these competitor customers that, frankly, we hadn’t had a chance to compete for…in the older generation of applications,” he said.
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Another important enterprise SaaS segment is human capital management (HCM), the HR software that helps companies recruit and manage their talent. Oracle’s HCM Cloud revenue also rose significantly in the quarter, more than double cloud HCM rival Workday’s growth rate, Hurd said. Among Oracle’s HCM Cloud customer wins in the quarter were Abu Dhabi National Oil, the Chicago Transit Authority, the city of Atlanta, Deutsche Post, Emblem Health, Mars, Southwestern Energy, and Williams-Sonoma.
Led by this cloud ERP and HCM growth, “we are now the clear market leader in enterprise back-office SaaS applications with over 5,000 Fusion customers,” Hurd said. “And we expect to extend our lead by selling around $2 billion in new enterprise SaaS application cloud subscriptions over the coming four quarters. That’s more new SaaS sales than any of our competitors.”
Database Dividends Ahead
Oracle is also plowing forward in the other two major segments of the cloud services market: PaaS (platform as a service, including database, application development, data analytics, middleware, and other services) and IaaS (infrastructure as a service, including compute, storage, and networking services). Revenue from those two businesses combined rose 21% in the second quarter, to $396 million.
CEO Catz noted that the PaaS-plus-IaaS business would have grown by more in the quarter were it not for the fact that the reported revenue number includes legacy hosting services, a business that was down in the quarter. “As traditional hosting services become a smaller part of total PaaS and IaaS, the underlying growth of PaaS and next-gen IaaS will be more visible,” she said.
One new product with enormous potential to drive future sales of both PaaS and IaaS services is Oracle Database 18c, the fully automated, cloud-based database the company announced at Oracle OpenWorld in October. Planned to be released in calendar year 2018, this “self-driving” database is engineered to automatically and continuously patch, tune, back up, and upgrade itself without human intervention, all while the system is running.
Not only does Oracle’s forthcoming autonomous database represent a technological leap forward, but it’s also considerably less expensive than competing offerings, Oracle Executive Chairman and CTO Larry Ellison said on the earnings call.
Ellison noted that in a series of published benchmark tests, it cost five times more to run the exact same workloads on the Amazon Redshift cloud database than on Oracle Autonomous Database.
License Innovation
Furthermore, under a program Oracle announced in September called Bring Your Own License, or BYOL, current Oracle customers can apply licenses they own for certain kinds of on-premises software, including Oracle Database, toward the equivalent Oracle Cloud services, including Oracle Database 18c.
The BYOL model appeals to companies that want to “lift and shift” their on-premises database workloads to the cloud. The program lets customers leverage the investment they’ve already made in Oracle Database licenses; gain the flexibility and performance of running those workloads on Oracle Cloud Infrastructure instead of on premises; and add on any new cloud database features they want, including those in the forthcoming autonomous database.
BYOL has the added benefit of incentivizing Oracle customers to renew their license and support agreements, Catz said, a contributing factor in the company’s ability to boost revenue for that business in the quarter.
“Because BYOL is now available and customers better understand their transition options to move to the Oracle Cloud, technology new software license revenue is dramatically improving from the declines we were seeing previously,” she said. “We expect this trend to continue as we roll out the autonomous database, as customers license the options and technology they need. We expect to continue to take share in database.”
Rob Preston is editorial director in Oracle’s Content Central organization.
