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Oracle Cloud, Licensing Demand Leads To Strongest Organic Growth In Over 10 Years
Joseph F. Kovar
‘Some licenses, you know, classically are used on-premise, but a lot of the new licenses that we‘re selling allow our customers to ... run them in the cloud, whether it’s our cloud or other people‘s clouds, or in the case of Salesforce in their own cloud. So the Oracle database is still the number one database in the world by a significant margin,’ says Oracle Co-founder, Executive Chairman and CTO Larry Ellison.
A growing Oracle Cloud business and a boom in licenses to get businesses tied to the company’s technology gave Oracle its highest organic growth in over a decade and a significant fiscal 2022 quarter fourth compared to expectations.
Oracle CEO Safra Catz Monday in her prepared remarks during Oracle’s fiscal 2022 quarter fourth financial analyst conference call told analysts that Oracle had an excellent quarter across the board with total revenue up 10 percent over the previous year.
“[Revenue had] the highest organic growth we‘ve seen since 2011 and $240 million above the high end of my current constant currency guidance,” Catz said. “Earnings were equally strong as EPS [earnings per share] was 20 cents above the high end of guidance. What Q4 demonstrates is that our business is accelerating.”
Oracle’s growth cascades as businesses, particularly during the pandemic, found reasons to use more of the company’s technologies to modernize their operations, Catz said.
“Those customers are then becoming larger Oracle customers,” she said. “Fusion customers are buying OCI (Oracle Cloud Infrastructure). OCI customers are buying Fusion and NetSuite. Database customers are moving to Autonomous on OCI. Industry vertical customers are going all-in on Fusion. We have real momentum all around. Going forward, and despite the macro environment, we continue to expect the revenue growth in our cloud business will accelerate substantially in fiscal year 2023.
Oracle Co-Founder, Executive Chairman, and CTO Larry Ellison (pictured) said during his prepared remarks that the company is laying the groundwork for accelerating it cloud revenue growth.
That starts with Oracle’s two most important verticals, healthcare and financial services, Ellison said.
Oracle’s $28-billion acquisition of AWS partner and healthcare technology developer Cerner, which closed just this month, gives Oracle the opportunity to build a complete suite of applications for the entire healthcare ecosystem, Ellison said.
Oracle is modernizing Cerner‘s clinical systems with capabilities like a voice user interface and applications like disease-specific AI models; adding an IoT device network to improve patient diagnostics and monitoring; adding administrative systems to handle recruiting, scheduling, and paying contract workers such as doctors and nurses; simplifying inventory control; adding RFID tags and maps on handheld phones; and automating payment authorization and billing systems, he said.
“We can do all of this and more because we‘re building these healthcare applications using the latest, most productive technologies in the cloud, namely the Oracle Autonomous Database and the Apex low-code programming language,” he said. “Using these tools, security and reliability are built into the technology platform, not the application.”
On the financial services side, Oracle is working with major banks and leading logistics companies to automate B2B commerce from directly within the Oracle ERP Cloud, Ellison said. For example, he said, a hospital looking to purchase an X-ray machine can enter a purchase request into their Oracle ERP Procurement system, which then sends that order directly to the selling company‘s Oracle ERP Order Management system and automatically generates a loan request from that hospital’s preferred bank, after which the seller can use its Oracle ERP Order Management system to check product availability and submit a shipping request.
The entire B2B commerce process is automated within the Oracle Cloud, Ellison said.
“Automating B2B commerce is yet another huge opportunity for Oracle,” he said. “We already have over 30,000 Cloud ERP customers, including many of the world‘s most important banks and leading logistics companies.”
When asked by an analyst how Oracle’s cloud license and on-premises license revenue grew 18 percent year over year in the fourth fiscal quarter, Ellison said that, with the exception of Workday, most big application and SaaS companies such as Salesforce.com license the Oracle database for use in the cloud.
“Some licenses, you know, classically are used on-premise, but a lot of the new licenses that we‘re selling allow our customers to ... run them in the cloud, whether it’s our cloud or other people‘s clouds, or in the case of Salesforce in their own cloud,” he said. “So the Oracle database is still the number one database in the world by a significant margin. And it’s the number one database in the cloud when you start counting all of the SaaS companies that use the Oracle database.”
When asked by another analyst what is driving Oracle’s license growth, Catz replied that large enterprises understand that having an unlimited agreement for some period of time gives them significant flexibility.
“Any large database user that does not have an unlimited agreement with us is really not optimizing for their spend, because it gives them incredible flexibility,” she said. “They can use on premise for as long as they need it. They can move to the cloud and get a much lower price in the cloud with BYOL [bring your own license], and they can move back and forth.”
When asked by another analyst whether Oracle’s ERP cloud business could be impacted by an economic slowdown, Ellison replied that cloud systems cost less than on-premises systems to run while providing better information.
He also said that smaller companies are continuing to actively invest in the cloud, including Oracle’s NetSuite ERP technology for smaller businesses.
“We got the most revenue we ever got from NetSuite this past quarter, and the highest growth rate we‘ve ever gotten from NetSuite this past quarter,” he said. “[Smaller businesses] are accelerating into the recession. Because, we think, the benefits are enormous. And it equips the companies to compete more effectively. And again, we don’t see that business slowing down. Quite the contrary, we see our ERP business, both Fusion and NetSuite, accelerating in spite of the macro economic situation.”
For its fiscal 2022 fourth quarter, ended May 31, Oracle reported total revenue of $11.84 billion, up 5 percent from the $11.23 billion the company reported for its fiscal 2021 fourth quarter. That beat analyst expectations by $190 million, according to Seeking Alpha.
That included cloud services and license support revenue of $7.62 billion, up 3 percent; cloud license and on-premises license revenue of $2.54 billion, up 18 percent; hardware revenue of $856 million, down 3 percent; and services revenue of $833 million, up 3 percent.
Broken down another way, Oracle reported cloud revenue, including IaaS and SaaS, of $2.9 billion, up 19 percent; infrastructure cloud revenue up 36 percent; Fusion ERP SAS revenue up 20 percent; and NetSuite ERP SaaS revenue up 27 percent.
For the quarter, Oracle reported GAAP net income of $3.19 billion or $1.16 per share, down from last year’s net income of $4.03 billion or $1.37 per share. On a non-GAAP basis, Oracle reported net income of $4.24 billion or $1.54 per share, down from last year’s $4.52 billion or $1.54 per share. That non-GAAP earnings beat analyst expectations by 16 cents per share, according to Seeking Alpha.
For all of fiscal year 2022, Oracle reported revenue of $42.44 billion, up 5 percent over last year’s $40.48 billion. Cloud services and license support revenue rose 5 percent to $30.17 billion, cloud license and on-premises license revenue grew 9 percent to $5.88 billion, hardware revenue fell 5 percent to $3.18 billion, and services revenue increased 6 percent to $3.21 billion.
For the year, Oracle reported GAAP net income of $6.72 billion or $2.41 per share, down significantly from the $13.75 billion or $4.55 per share it reported for fiscal 2021. On a non-GAAP basis, Oracle reported revenue of $13.66 billion or $4.90 per share, down from last year’s $14.13 billion or $4.67 per share.
Looking forward, Catz said Oracle is optimistic about its business momentum despite increasing macroeconomic uncertainty. Oracle expects its cloud business revenue to grow organically over 30 percent in fiscal 2023. The company is also expecting double-digit organic growth in its cloud service and license support revenue.
For its fiscal 2023 first quarter, total revenue including the Cerner acquisition is expected to grow between 20 percent and 22 percent year over year, Catz said. First quarter cloud revenue is expected to grow by 25 percent to 28 percent excluding the Cerner revenue, or between 47 percent and 50 percent including Cerner, she said.