Cloud revenues’ contribution to overall revenues is rising
Earlier in this series, we discussed Oracle’s (ORCL) operating segments’ performance in fiscal 4Q17 and fiscal 2017. Looking at the company’s performance in the last quarter and its continued focus on its cloud offerings, Oracle seems to be on its way to becoming a key player in the cloud space.
As has been the case for some time, all of Oracle’s operating segments, except the Cloud segment, reported a fall in revenues in the last quarter. Cloud revenues’ contribution to Oracle’s overall revenues soared to 12% in fiscal 2017, compared to 8% in fiscal 2016.
Amazon (AMZN), with 40% market share, is a leader in the cloud space. Microsoft (MSFT), IBM (IBM), and Google (GOOG) are the other top players in the cloud space. Although Oracle hasn’t yet reached the top five players, with each passing quarter, the contribution of its Cloud revenues to the company’s overall revenues has increased.
Consistent expansion in Oracle’s SaaS and PaaS margins
On a broader level, Oracle’s non-GAAP[1. generally accepted accounting principles] operating margins stood at 34% in fiscal 2017, the same level as in fiscal 2016. Its margins remained stable despite an increase in Oracle’s main operating expenses—R&D (research and development) and sales and marketing.
In fiscal 2017, R&D as a percentage of sales increased ~1% from 16.3% in fiscal 2017 to 15.6% in fiscal 2016. Sales and marketing as a percentage of sales also increased to 21.7% in fiscal 2017 from 21.3% in fiscal 2016.
Oracle’s net margins improved in fiscal 4Q17 on the back of improvement in its SaaS and PaaS margins, as the chart above shows.
In fiscal 2017, Oracle’s SaaS and PaaS revenues grew 60% in constant currency terms. This helped its non-GAAP SaaS, PaaS, and IaaS gross margins increase 63% and 51%, respectively.
In fiscal 2016, its non-GAAP SaaS and PaaS margins were 49% and 46%, respectively. This is positive news for investors who have previously shown concern for Oracle’s margins in the cloud space.