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Oracle’s Cloud Revenues Gained Traction, Rose 31% in Fiscal 2Q16

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Oracle’s cloud offerings continue to gain traction

So far in this series, we’ve looked at Oracle’s (ORCL) fiscal 2Q16 results, which don’t generate much optimism for the company. Oracle, like other enterprise software companies such as IBM (IBM) and Microsoft (MSFT), is finding it difficult to report growth in revenues.

However, Oracle’s cloud offerings continue to gain traction. In fiscal 2Q16, Oracle’s total cloud revenue rose 31% to $649 million on a constant currency basis. Within Oracle’s cloud segment, SaaS (Software as a Service) and PaaS (Platform as a Service) revenue rose 34% to $484 million. IaaS (Infrastructure as a Service) revenue rose 7% to $165 million.

According to Oracle’s fiscal 2Q16 revenues, its annual cloud revenue run rate is ~$2.6 billion in current fiscal 2016.

In October 2015, Oracle launched Elastic Compute Cloud, announcing its entry into the public cloud space. Oracle also announced the beta program availability of its Oracle Database 12c Release 2, or Oracle’s Database 12cR2, at its OpenWorld 2015 conference held in October 2015.

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Client-stickiness provides silver lining to Oracle’s future

Oracle’s dominance in the on-premise database software market will likely prove advantageous in its transition to the cloud. It may also give the company an edge over Amazon (AMZN), the leader in the cloud space.

A majority of companies will think twice before shifting their mission-critical data and computing activities to the cloud. This indicates that Oracle’s on-premise database management infrastructure and software will likely always have buyers. Moreover, companies using Oracle’s database software are very likely to employ the same provider for shifting non-critical data and operations to the cloud due to integration issues. So Oracle’s dominance in the database market gives it access to a set of sticky customers it can tap into in order to expand its new cloud offerings.

However, the acquisition of new customers continues to be a daunting task for Oracle. The company is currently in a transition phase. It is yet to be seen if Oracle can position itself in the cloud space as it managed to do in the database software space.

Fiscal 3Q16 expectations

In its latest earnings release, Oracle stated that it expects fiscal 3Q16 to witness revenue growth in the wide range of 0%–3%. It expects non-GAAP (generally accepted accounting principles) EPS (earnings per share) to be $0.63–$0.66.

You could consider investing in the SPDR S&P 500 ETF (SPY), which has an exposure of 8.4% to application software and invests 3.4% of its holdings in Oracle.

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