Oracle Q3 Earnings Preview: 5 Things To Know

GenAI capabilities, capital expenditures to meet customer demand and Oracle Cloud Infrastructure opportunities could come up.

Oracle’s latest generative artificial intelligence capabilities. Capital spending to meet customer demand. And opportunities with Oracle Cloud Infrastructure.

These are some of the items expected to come up during the Austin, Texas-based database products and services vendor’s earnings call Monday for the third quarter of its 2024 fiscal year.

Analysts will likely look for work Oracle executives have done to make up for misses from the previous quarterly earnings call, where the vendor reported strong margins but weaker revenue and cloud growth.

Oracle Q3 Earnings

Cloud and on-premises license revenue came in about 3 percent lower than expected by Wall Street and services about 2 percent lower, although total cloud revenue still grew 24 percent year over year ignoring foreign exchange, according to a December report from investment bank Bernstein.

Still, the vendor reiterated full-year cloud growth of between 26 percent and 29 percent and capital spending of about $8 billion for the fiscal year. Fiscal year 2026 guidance also went unchanged, according to Bernstein.

Oracle CEO Safra Catz predicted total revenue for the third quarter to be up 6 percent to 8 percent year over year.

Bernstein was encouraged by Oracle’s setup for the second half of the fiscal year due to strategic back-office growth and a possible database revenue tailwind driven by Microsoft’s Exadata racks request for the year, among other factors.

Oracle has also achieved success in recent industry reports, including a spot on Gartner’s Magic Quadrant for Cloud Database Management Systems Providers.

Read on for what else you need to know for Oracle’s third fiscal quarter earnings report.

Oracle’s Latest GenAI Capabilities

In a March report from Wedbush, the investment bank identified Oracle as among a group of “software leaders” including Salesforce, Adobe, MongoDB and Palantir set to see growth profiles change “as a myriad of use cases get built out across the enterprise and consumer ecosystem.”

“Is This a 1995 or 1999 Moment? Our answer is firm and confident: this is a 1995 Moment as now the AI Revolution and $1 trillion of incremental spending over the next decade is hitting the software ecosystem and rest of tech sector,” according to the report. “As someone that covered tech stocks during the Dot.com bubble/burst this is nowhere near the 1999/2000 period in our view as the sky high valuations, lack of monetization/ infrastructure, weak balance sheets, froth business models, and macro backdrop was in a totally different world back then compared to what we see today.”

With the GenAI opportunity looking bright, Oracle has continued to unveil new features leveraging the emerging technology, including general availability (GA) for Oracle Cloud Infrastructure (OCI) Generative AI service.

The fully managed service integrates large language models (LLMs) from Cohere and Meta Llama 2, according to Oracle.

The service supports more than 100 languages, an improved GPU cluster management experience and flexible fine-tuning options, according to Oracle. Plus, the service works in the Oracle Cloud or on-premises with an OCI Dedicated Region.

Magic Quadrant Rankings

In the new cloud DBMS ranking from Gartner, Oracle won the bronze medal for vision and ranked No. 4 for execution, falling behind Amazon Web Services and Google Cloud. Oracle beat Microsoft for vision but lagged behind the tech giant in execution.

The analyst firm said that Oracle DBMS has one of the richest sets of technologies in the market, an advantage that continues in its cloud offering. Many of its database offerings can run in a customer’s data center or any public cloud data center.

However, Gartner said customers regularly cite cost and expense as a primary negative factor. Although Oracle’s growth is slightly above overall cloud market growth, its top cloud competitors have been growing faster.

A separate ranking for strategic cloud platform services put Oracle at No. 4 for execution and vision, behind Amazon Web Services, Microsoft and Google. Gartner said Oracle is out-innovating the market in distributed cloud and sovereign cloud computing. Oracle can deploy standard commercial regions, private regions in customer data centers, sovereign cloud regions, disconnected regions and locally partner-operated regions.

Compared with other cloud leaders, Gartner said OCI’s strategy around generative AI is less mature and its messaging is muted. Despite a solid partnership with Nvidia, OCI’s AI infrastructure is not yet well-differentiated in the market, it said.

Oracle ECP

One of Oracle’s more interesting updates more focused on the world of communications and edge computing over AI is the recently announced Enterprise Communications Platform (ECP), which could come up on Monday’s call.

ECP connects Oracle industry applications to networks and IoT devices to extend their value, according to the vendor. It promises a communications backbone and edge architecture that embeds directly into Oracle industry applications stacks to simplify integration and network contract management.

The offering promises secure communications for dispatch command centers for police and first aid squads, according to Oracle. ECP Edge allows mobile video capture on police car dashboards, body cameras, security cameras or vehicle cameras with 270-degree views of incidents.

Is Oracle Meeting Demand?

Analysts will likely look for signs that Oracle is better meeting customer demand.

In Bernstein’s December report on Oracle, the firm explained that “Oracle builds much smaller datacenters than its hyperscale provider peers and is managing a global datacenter footprint with 66 regions and likely hundreds of datacenters.”

“For the bigger peers they have datacenter [square feet] available almost anywhere and have excess server capacity,” according to the report. “Oracle has tried to manage a just-in-time approach and while they could have added smaller datacenters (in the 1-2M megawatt range) their very large clients want much to leverage larger facilities where they can have large footprints of co-located servers. Bigger facilities, especially when you are not starting to build them years in advance are more scarce, and you can, and Oracle has, feel a demand/supply disconnect.”

The firm said it was optimistic that “Oracle will work through this as it did the server supply issues and management is convinced that demand is not going elsewhere as they wait what could be months for all their capacity.”

“We see this as growing pains and therefore not an issue for our thesis,” according to Bernstein.

Oracle Cloud Opportunities

In cloud, Oracle’s decelerated SaaS and IaaS concerned Bank of America, according to a report following the previous earnings call.

The bank said that decelerated growth in Fusion and NetSuite compared to neutral or accelerated growth from competitors “validates our view that Oracle's SaaS business is reliant on existing customer migrations (from legacy on premise e-business suite, PeopleSoft) as opposed to new application growth.”

In the Bernstein report, the firm said that Oracle Cloud Infrastructure “is growing double the rate of many of their larger peers” and that the vendors’ leaders believe OCI can grow at 50-plus percent for a sustained period of time.

However, Oracle has now reported two consecutive quarters “of meaningful deceleration,” plus a “large variability in growth numbers,” according to Bernstein.

“Most investors perceive cloud as stable and not bouncing around very much, which is why this was a point of concern (though this is not a rule, per se — we have seen other hyperscalers and even SaaS vendors face volatile cloud growth numbers at points, as well),” according to Bernstein.

A positive for Oracle’s cloud business could come from the large order of Exadata racks from Microsoft for 20 Azure data centers “could be big for Oracle and adoption of the Oracle database in the Cloud.”

“It could also drive additional non-database OCI revenue for Oracle,” according to the Bernstein report. “We understand that Oracle is going to capture the lion’s share of the revenue for these servers while Microsoft, which captures Azure revenue for these services, also absorbs sales costs and datacenter costs (physical and energy costs). For Microsoft to ask for 2,000 racks in the next year means Microsoft sees a huge opportunity to monetize and while Oracle will deliver the servers, we understand, as Microsoft generates the opportunities, the opportunity for Oracle to shift on-premise database maintenance to far larger (could be 3x) Cloud revenue is huge.”