MarketWatch First Take: Oracle cloud growth slows, and — Surprise! — it stops giving cloud numbers

This post was originally published on this site

After a few quarters of disappointing cloud revenue growth, Oracle Corp. on Tuesday surprisingly stopped breaking out its much touted cloud business.

The move should lead some investors to fear Oracle ORCL, -0.54%  is obfuscating the performance of its once-hot growth business, after loud concerns about disappointing cloud growth. After an initial pop in after-hours trading on better-than-expected fiscal fourth-quarter results, shares of Oracle fell nearly 4% to about $44.55 Tuesday afternoon. That decline could continue a slide that has seen Oracle fall 2.1% this year, while the Dow Jones Industrial Average DJIA, -1.15%  after Tuesday’s tumble, is up 1.1%.

Oracle has been breaking out cloud revenue very specifically, with three different types of businesses — software-as-a-service, platform-as-a-service and infrastructure-as-a-service — reported separately and as a group. With its new reporting structure revealed Tuesday — less than two years after Oracle last changed how it reported numbers — not even the total number was included in official statements, though co-Chief Executive Safra Catz did give an overall number on the company’s conference call.

In that call, John DiFucci, an analyst with Jefferies & Co., said he understood the rationale behind Oracle’s change in reporting, but asked “how do you get investors comfortable that this also is not obfuscating any cloud weakness?”

Don’t miss: 10 pure-play cloud companies to put on your watchlist

“There is no hiding. The cloud number is $1.7 billion,” Catz said. “We are right where we said we would be…Cloud billings strong. Nice and strong. You can hear that. You can hear it from what we’re talking about.”

Analysts had been looking for Oracle to report $1.69 billion in total cloud revenue, according to FactSet, expectations that have diminished since Oracle’s cloud growth started slowing down last year. That reflects year-over-year growth of 21.4%, compared with growth of 58% in the fiscal fourth quarter of 2017, showing further slowing compared with rivals such as Inc.’s AMZN, +0.64%  AWS, which grew 49% in the most recent quarter.

In its news release, Oracle instead reported combined cloud services and license support revenue of $6.8 billion in one category, an increase of 8%, and $2.5 billion in cloud license and on-premises licenses in another revenue category, a drop of 5%. Oracle said it is combining cloud and its legacy software businesses in its financial statements because customers want more flexible licensing options. As customers transition more software and data from legacy systems on-site to the cloud, Oracle now offers them a so-called “bring your own license,” or BYOL, option.

“We want to explain to you and make sure you understand…that our customers are both buying licenses and using licenses they have, which are currently being recorded as on-premise support,” Catz said. “They’re using those, in fact, in the cloud, and that’s something that’s, of course, what they were designed for, frankly, and what we’re very excited about.”

See also: GE’s 111-year run in the Dow comes to an end

DiFucci, who has a buy rating on Oracle, said in a telephone interview that from a high level, it makes sense what Oracle is doing, because the company has some very large customers who have hybrid systems, partly in the cloud and partly on-premises.

But with Oracle’s cloud revenue clearly decelerating, Oracle doesn’t have a big reason to focus on that business anymore.

“I would say that Oracle is trying to shift the narrative away from the cloud,” said Patrick Walravens, an analyst with JMP Securities LLC, in an email. “In the end though, it doesn’t really matter that much what bucket you put the revenue in…the real question is, how much growth is there in the entire business? The answer at the moment is not much. One percent growth in constant currency in total revenue in Q4.”

While Oracle may be able to justify yet another change to reporting as it incorporates new accounting standards, appearances are important. This change appears to be a way to hide numbers that have been disappointing to investors and weighed on the company’s stock, which should make any investor very wary.

More from MarketWatch
Be Sociable, Share!

Related Posts


MarketTamer is not an investment advisor and is not registered with the U.S. Securities and Exchange Commission or the Financial Industry Regulatory Authority. Further, owners, employees, agents or representatives of MarketTamer are not acting as investment advisors and might not be registered with the U.S. Securities and Exchange Commission or the Financial Industry Regulatory.

This company makes no representations or warranties concerning the products, practices or procedures of any company or entity mentioned or recommended in this email, and makes no representations or warranties concerning said company or entity’s compliance with applicable laws and regulations, including, but not limited to, regulations promulgated by the SEC or the CFTC. The sender of this email may receive a portion of the proceeds from the sale of any products or services offered by a company or entity mentioned or recommended in this email. The recipient of this email assumes responsibility for conducting its own due diligence on the aforementioned company or entity and assumes full responsibility, and releases the sender from liability, for any purchase or order made from any company or entity mentioned or recommended in this email.

The content on any of MarketTamer websites, products or communication is for educational purposes only. Nothing in its products, services, or communications shall be construed as a solicitation and/or recommendation to buy or sell a security. Trading stocks, options and other securities involves risk. The risk of loss in trading securities can be substantial. The risk involved with trading stocks, options and other securities is not suitable for all investors. Prior to buying or selling an option, an investor must evaluate his/her own personal financial situation and consider all relevant risk factors. See: Characteristics and Risks of Standardized Options. The educational training program and software services are provided to improve financial understanding.

The information presented in this site is not intended to be used as the sole basis of any investment decisions, nor should it be construed as advice designed to meet the investment needs of any particular investor. Nothing in our research constitutes legal, accounting or tax advice or individually tailored investment advice. Our research is prepared for general circulation and has been prepared without regard to the individual financial circumstances and objectives of persons who receive or obtain access to it. Our research is based on sources that we believe to be reliable. However, we do not make any representation or warranty, expressed or implied, as to the accuracy of our research, the completeness, or correctness or make any guarantee or other promise as to any results that may be obtained from using our research. To the maximum extent permitted by law, neither we, any of our affiliates, nor any other person, shall have any liability whatsoever to any person for any loss or expense, whether direct, indirect, consequential, incidental or otherwise, arising from or relating in any way to any use of or reliance on our research or the information contained therein. Some discussions contain forward looking statements which are based on current expectations and differences can be expected. All of our research, including the estimates, opinions and information contained therein, reflects our judgment as of the publication or other dissemination date of the research and is subject to change without notice. Further, we expressly disclaim any responsibility to update such research. Investing involves substantial risk. Past performance is not a guarantee of future results, and a loss of original capital may occur. No one receiving or accessing our research should make any investment decision without first consulting his or her own personal financial advisor and conducting his or her own research and due diligence, including carefully reviewing any applicable prospectuses, press releases, reports and other public filings of the issuer of any securities being considered. None of the information presented should be construed as an offer to sell or buy any particular security. As always, use your best judgment when investing.