Anirban Ghoshal
Senior Writer

Cloud, SaaS boost Oracle sales, but competition exacts costs

News Analysis
Mar 11, 2022
Cloud ComputingTechnology Industry

While Oracle reported revenue growth on the back of cloud services and SaaS sales, net profit plunged, dragged down by the heavy costs of keeping up with the competition.

Oracle sign
Credit: IDG

Cloud services and sales of SaaS applications boosted Oracle revenue for its last fiscal quarter, but the price of keeping up with the leading hyperscale cloud providers dragged down overall profit.

During a call with analysts after the results were announced Thursday, Oracle Chairman and CTO Larry Ellison named a long roster of high-profile customers the company had signed up recently.

In the financial services sector, Oracle signed TD Bank, Silicon Valley Bank, Societe Generale in France, and the company expects to close a deal with BNP Paribas soon, Ellison said, according to a transcript from Seeking Alpha. New customers for the ERP and HCM (human capital management) software  include Tata Steel, Rogers Communications, BAE Systems, Canon and Zoom, Ellison said.

During the conference call, when asked about a report by Reuters that said Oracle was close to signing a deal with TikTok that would have all of the video-oriented social network’s data in the US housed by Oracle — and thus taking some business away from Google, where it currently stores some data — Oracle CEO Safra Catz remained non-committal and said that Oracle shares “a good relationship” with the company.

Oracle’s user base grows

Oracle did have results to brag about, in terms of growing its cloud user base. Cloud  revenue (IaaS plus SaaS) for Oracle’s third quarter, ended February 28, was $2.8 billion — including the effect of currency fluctuations, which depress dollar sales figures for global companies when the dollar is strong as it is now, that was up a healthy 24% from the year-earlier period. This takes the run-rate for cloud revenue for the entire fiscal year to $11.2 billion, up by 26%, Catz noted.

“It was also the highest organic growth rate since we began our transition to the cloud. We saw broad-based outperformance in all segments. And for the first time in more than 10 years, all segments of our business saw growth,” Catz said.

Infrastructure revenue and usage, specifically, were also up. “Excluding legacy hosting services, infrastructure cloud services grew more than 60%. And I expect the infrastructure revenue growth rate will trend higher over time. OCI consumption, which includes autonomous database, was up 93%, also higher than last quarter,” Catz said.

While that cloud growth is good news for Oracle, it is still trailing market leaders Microsoft, AWS and Google. And Oracle has tough competition ahead. For example, in comparison, Microsoft reported $22.1 billon in cloud revenue last quarter, up 32% year over year.

A big issue for Oracle is that it is expensive to maintain the momentum for its own cloud growth.

R&D, service expenses increase

While overall revenue including services and license support rose 4% year over year to reach $10.5 billion, net income plunged 54% to $2.3 billion. Big reasons for the decline were operating expenses for cloud services and license support, which increased 23% to $1.3 billion; sales and marketing expenses, which rose 5% to $2 billion, and R&D costs, which increased 12% to $1.8 billion.

Despite the challenge of keeping up with the competition, Ellison sees increasing demand ahead, and forecasts accelerating uptake of Oracle cloud offerings.

“Do I think this is a kind of a year 2000 like pandemic boom, people rushing to get to the cloud, and it’s going to slow down after?,” Ellison said. “Just the opposite, we’re really still in the early days. Even though we now have 10,000 customers in Oracle ERP Fusion, another — almost 30,000 customers in total, including NetSuite, I still think we’re in the very early days of doing this. It’s just getting faster. I mean the growth — our growth is accelerating, accelerating, accelerating.”