Why Are Investors So Skeptical about Oracle’s Cloud Growth?



Cloud revenues and Oracle’s overall revenues

So far in this series, we’ve discussed expectations for Oracle’s (ORCL) soon-to-be-announced fiscal 1Q17 results as well as the acquisition spree going on in the cloud space. Oracle’s SaaS (software-as-a-service) and PaaS (platform-as-a-service) revenues grew 48% to ~$2.8 billion in fiscal 2016, as compared to ~$1.9 billion in fiscal 2015.

However, Oracle is still in a transitional phase, shifting its operations from license sales to subscriptions. Also, SaaS revenues are usually more predictable than licensing deals, which is why they are increasingly preferred by software companies.


That said, software companies like Microsoft (MSFT), Oracle, and IBM (IBM) have found such revenues to be more complicated because they are accustomed to expect huge revenues by closing large deals.

Oracle’s significant growth in cloud revenues, thus, does not mean much for the company’s overall revenue growth because these revenues still make up less than 10% of Oracle’s overall revenues. And none of the company’s other operating segments reported growth in fiscal 4Q16.

Article continues below advertisement

SaaS is the fastest-growing segment in cloud

The silver lining here is Oracle’s focus on SaaS and PaaS. According to the Cisco’s (CSCO) Global Cloud Index, SaaS is expected to be the fastest-growing cloud service through 2018, as the graph above shows. SaaS is expected to grow at a CAGR (compounded annual growth rate) of 33%, whereas the cloud market as a whole is expected to grow at a CAGR of 24%.

Salesforce.com (CRM) is the largest player in SaaS, which is the fastest-growing sector in the cloud computing space, with a ~20% market share. The recent acquisitions by Microsoft and Oracle of LinkedIn (LNKD) and NetSuite, respectively, demonstrate these companies’ ambitions to strengthen their presence in this rapidly growing space.


More From Market Realist