Oracle’s earnings disappoint on a lack of cloud business growth

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Oracle reports lower-than-expected results

Oracle (ORCL) reported its fiscal third quarter results, announcing revenues of $9.32 billion and earnings of 68 cents per share. However, Wall Street was expecting revenues of $9.36 billion and earnings of 70 cents per share. In the last quarter, Oracle had given revenue guidance between $9.15 billion and $9.51 billion and earnings of 68 cents to 72 cents per share. Although Oracle achieved mid-point revenue guidance in this quarter, its earnings came in at the lower end of the company’s guidance. After announcing the results, Oracle’s shares declined more than 5% in the extended trading session, but they recovered during the next day’s trading session.

Oracle’s cloud business sales aren’t growing enough

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As the above chart shows, Oracle’s stock has been range-bound over the last few years. We believe the primary reason for slow growth in Oracle’s stock has been its inability to grow its cloud computing revenues fast enough. According to Oracle’s earnings release, new software licenses and cloud software subscription revenue increased 4%, to $2.4 billion, with cloud business sales approaching $300 million. Salesforce.com (CRM), SAP (SAP), and Microsoft (MSFT) are some players showing more success in this market. According to IDC, worldwide spending on public IT cloud services will increase from $47.4 billion in 2013 to $107 billion by 2017—a compounded annual growth rate of 23.5%. This shows that Oracle needs to do a lot to catch up to the overall cloud computing market’s growth.

Oracle’s software business growth is satisfactory

Oracle’s new types of combined hardware and software machines, known as Exadata and Exalogic, are doing well. Oracle calls these machines “engineered systems.” They achieved 30% year-over-year growth in the last quarter. During the company’s conference call to announce earnings, Oracle claimed that it had a long list of customer wins against IBM (IBM).

Oracle is trying to grow through acquisitions

Oracle is known for acquiring companies in order to grow its business. In the last quarter, it acquired:

  1. Responsys, a provider of enterprise-scale cloud-based business to consumer (B2C)
  2. Corente, a provider of software-defined networking technology for wide area networks
  3. BlueKai, a cloud-based Big Data platform

Oracle has enough cash in hand (about $37 billion) that it can keep acquiring companies to spur its growth. It will be interesting to see how many companies Oracle acquires in the next quarter.

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