The strengthening U.S. dollar compared to global currencies dampened Oracle revenues, and its on-premises software revenues decreased by 4 percent compared to the same quarter last year, according to Oracle’s fiscal first quarter 2016 earnings call yesterday. However, its cloud business was a bright spot for the quarter and for Oracle’s outlook.
Total cloud revenues were $611 million, up 29 percent, for Oracle’s first quarter, which ended Aug. 31. Cloud software as a service (SaaS) and platform as a service (PaaS) revenues were $451 million, up 34 percent.
The company reported earnings of 53 cents per share on $8.45 billion in revenue, compared to 62 cents in earnings per share on $8.6 billion during the same period from the previous year.
CEO Safra Catz said, “Cloud has become a significant contributor to revenue. Our software business is really two parts of one business: the on-premises software business, which is steady and growing modestly, and the cloud business that is in a high growth phase.”
Catz provided full fiscal-year guidance that assumes constant currency — an unlikely scenario given the current volatility. But based on constant currency projections, SaaS and PaaS revenue is expected to grow around 50 percent, while on-premises software is expected to grow only 1 percent.
Since on-premises software is a much bigger segment for the company than its cloud business, total cloud and on-premises software is expected to grow between 3 percent and 4 percent for the full year.
Oracle Banks on Cloud
Oracle’s cloud business has been in a “start-up phase” for three years and now has the infrastructure in place to expand “dramatically,” CTO Larry Ellison said on the call.
“We are entering the rapid growth, scale-out phase of our cloud business,” he said. “We are adding thousands of new SaaS, PaaS, IaaS and data customers to our existing data centers. With all that customer growth on top of our existing infrastructure, we expect that our cloud margins will double from 40 percent to 80 percent over the next two years.”
That margin projection is based on the fact that Oracle has invested “immense resources in building up our infrastructure,” Catz said. But during Oracle’s third and fourth quarters, capex numbers will drop significantly, while SaaS and PaaS revenues will increase from substantial new customer bookings, she said.
Quotes taken from the earnings-call transcript on Seeking Alpha.