Oracle's Cloud Business Shows Momentum as Sales, Profit Beat

Brian Womack (Bloomberg) -- Oracle Corp. posted third-quarter revenue and profit that topped analysts’ estimates, signaling growing demand for the software maker’s cloud-based services that compete with Amazon.com Inc. and Salesforce.com Inc.

Profit before certain items was 69 cents a share, compared with an average estimate of 62 cents. Adjusted sales rose 2.9 percent to $9.27 billion in the period that ended Feb. 28, the Redwood City, California-based company said Wednesday in a statement. On average, analysts had projected $9.26 billion, according to data compiled by Bloomberg.

The report marked three straight quarters of revenue gains after more than a year of declines. Oracle has been adding products and pushing customers toward its cloud-based business software and services, which offer computing and storage power from remote sites. Oracle’s infrastructure offering, a product that goes head-to-head with Amazon Web Services, will eventually be the software company’s biggest cloud business, Executive Chairman Larry Ellison said.

See also: Oracle’s Cloud, Built by Former AWS, Microsoft Engineers, Comes Online

"These results show a nice upward inflection in the overall business as new cloud revenues are more than offsetting the declines in software license sales," Rodney Nelson, an analyst at Morningstar, said via email. That performance and Ellison’s comments may "be fueling some additional optimism around the transition," he said.

Overall, sales from Oracle’s cloud businesses gained 62 percent in the recent period. New software licenses, a measure that’s tied to Oracle’s traditional on-premise software business, declined 16 percent to $1.41 billion -- smaller than the drop of 20 percent posted in the fiscal second quarter.

Shares Jump

Oracle’s shares rose as much as 5.6 percent in extended trading. The stock had climbed less than 1 percent to $43.05 at the close in New York.

Net income in the recent quarter rose 4.5 percent to $2.24 billion, Oracle said. The company also raised its quarterly cash dividend to 19 cents a share, up from 15 cents.

On a conference call after the report, Ellison said to expect some large deals for customers moving databases to the "infrastructure-as-a-service" business, the company’s Amazon competitor that provides core computing power and storage. Ellison said his service has technological advantages and he expects big things from the lineup.

"We are now in position to help our hundreds of thousands of database customers move millions of Oracle databases to our infrastructure-as-a-service cloud," Ellison said. "And before long, infrastructure-as-a-service will become Oracle’s largest cloud business."

Chief Executive Officer Safra Catz also expressed optimism about the cloud. She said that piece of the business should grow 25 percent to 29 percent in the current quarter, on an adjusted basis and measured in constant currency. The other part of Oracle’s cloud business, which includes applications for human resources and finances, should grow 69 percent to 73 percent, she said on the call.

Overall, she expects fourth-quarter adjusted sales to range from a decline of 1 percent to a gain of 2 percent, based on constant currency. Adjusted earnings are forecast to be 78 cents to 82 cents a share.

NetSuite Deal

The third quarter was the first full period since the company acquired NetSuite Inc., a provider of cloud-based financial services, for $9.3 billion, one of its largest-ever deals. NetSuite is one of the biggest pure providers of these modern software features, having carved out a leadership position in the market for tools that manage customers’ core financials. Adjusted sales in the part of the cloud business that includes NetSuite rose 85 percent.

“It appears that business activity was solid, particularly for cloud,” John DiFucci, an analyst at Jefferies LLC, said in a research note before the results were released. Oracle’s “approach to transitioning its business to cloud has taken a more healthy form.”