Oracle Misses Big In Q4, But Its CEOs Say Cloud Business Is Growing Like Gangbusters

Oracle missed Wall Street's profit and revenue expectations in its fiscal fourth quarter, but its top executives spent most of the vendor's earnings call Wednesday insisting that cloud is going to make everything OK.

For the quarter ended May 31, Oracle's revenue dropped 5 percent year over year, to $10.7 billion. Earnings came in at $2.78 billion, or 62 cents a share, compared with the $3.6 billion and 80 cents a share it reported during last year's quarter.

Wall Street analysts were expecting earnings of 87 cents per share on revenue of $10.95 billion. Oracle shares dropped more than 6 percent, to $42.03, in after-hours trading.

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Despite the miss, Oracle co-CEO Safra Catz said she's "delighted" with the results and that the vendor "dramatically overachieved in the cloud" during the quarter.

Oracle's cloud revenue was $579 million during the quarter. Catz said Oracle's Software-as-a-Service (SaaS) and Platform-as-a-Service (PaaS) bookings grew more than 200 percent during the quarter, and revenue was $125 million higher than Oracle's own internal forecast.

And while Oracle doesn't account for cloud sales upfront like it does with regular software, Catz said its transition to cloud will increase earnings per share "significantly" over time.

For example, while a $1 million software licensing booking results in around $3 million in revenue over a 10-year period, a $1 million SaaS and PaaS deal will result in around $10 million during the same period, said Catz.

"I would not trade cloud revenue for [software] license revenue," Catz said during the call. "Cloud means significantly more earnings and revenue over time."

Oracle co-CEO Mark Hurd said Oracle's cloud revenue is on a $2.3 billion annual run rate.

Hurd also said Oracle added $858 million in annual recurring revenue -- a key metric for cloud vendors -- during its fiscal 2015, and that this would have equaled almost $2.5 billion in software licensing revenue.

Hurd said Oracle expects cloud annual recurring revenue of between $1.5 billion and $2 billion next year.

"We are getting bigger and our [cloud] growth rate is expanding," Hurd said on the call. "We will be the world's largest enterprise cloud company."

Foreign exchange fluctuations were another factor negatively impacting Oracle's results during the quarter, according to Catz. This lowered Oracle's software and cloud revenue by 8 percent, reduced its hardware revenue by 9 percent and cut earnings by 9 cents per share, she said.

For Oracle's fiscal 2015, total revenue was $29.5 billion, up 1 percent from last year. Its cloud IaaS and PaaS business generated $1.5 billion, up 32 percent year over year.

Despite Oracle's optimism in cloud, Catz said it expects foreign exchange fluctuations to continue impacting its business in its fiscal 2016.

Oracle expects SaaS and PaaS revenue to rise between 39 percent and 43 percent next fiscal year, said Catz. Its "software and cloud revenue" -- which includes SaaS, PaaS, new software licenses and support -- is expected to grow between 6 percent and 8 percent, she said.

Oracle is expecting total revenue growth of 5 percent to 8 percent during fiscal 2016, and non-GAAP EPS of 56 to 59 cents per share, according to Catz.