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What’s the Outlook for Oracle’s Application Business?

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Key drivers

Oracle (ORCL) supports its software application delivery process through the cloud. Its enterprise resource planning and human capital management products have continued to see huge demand across different industries, driving its business and boosting its client base.

Oracle was late to enter the cloud market, which is dominated by IT players such as Microsoft (MSFT), IBM (IBM), and Amazon (AMZN). To gain market share and reduce the revenue gap, the company has focused on making aggressive acquisitions. In the last five years, the company has spent ~$19.8 billion on acquisitions, at an average of ~$4 billion per year.

Performance

Oracle is also optimistic that its on-premises software revenue will continue to improve. In the last five quarters, Oracle’s software license updates and product support business have grown at a compound annual rate of 1.4%, whereas its overall on-premises software business has grown at a compound annual rate of 1%.

As shown in the graph above, in fiscal 3Q18, Oracle’s total on-premises software revenue rose 4% YoY (year-over-year) to $6.4 billion. In the first three quarters of fiscal 2018, it rose 5% YoY to $18.6 billion.

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