Financial Performance

Cloud Revenue Helps Oracle Beat Q2 Estimates

Growth in Oracle's cloud-computing business, however, still lags behind rivals such as Workday and Salesforce.
Matthew HellerDecember 18, 2018
Cloud Revenue Helps Oracle Beat Q2 Estimates

Oracle’s cloud-computing revenue growth remained sluggish in the second quarter but earnings beat analysts’ estimates, in part due to share repurchases.

The software giant on Monday reported total revenue fell slightly to $9.56 billion, while net income rose to $2.33 billion, or 61 cents per share. Excluding items, it earned 80 cents per share.

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Analysts had expected earnings of 78 cents per share on revenue of $9.52 billion.

Revenue from cloud services and license support, Oracle’s biggest segment, rose 2.7% to $6.64 billion, compared to estimates of $6.63 billion, as enterprises shifted to cloud computing from the traditional on-premise database model to cut costs.

Co-CEO Mark Hurd singled out the performance of the Fusion and NetSuite enterprise resource planning (ERP) business, which delivered a combined revenue growth rate of 32% in the second quarter.

“With nearly 6,000 Fusion ERP customers and over 16,000 NetSuite ERP customers, Oracle is the clear leader in cloud ERP,” he said in a news release. “ERP has always been the largest segment of the enterprise applications business, so we have lots of room to grow as customers migrate from their traditional on-premise ERP to the Oracle Fusion ERP Cloud.”

As Reuters reports, Oracle aggressively increased its efforts to catch up with rivals such as Workday, Microsoft, and Salesforce in the rapidly growing cloud-based software business.

But revenue growth stalled in the first quarter and continues to lag behind Workday, which reported a 35% jump in cloud subscription revenue last month, and Salesforce’s flagship product Sales Cloud, which grew 11%.

“Oracle’s growth in cloud services and license support of just 3% appears to be contradicting the strength in the overall cloud market,” Daniel Morgan, senior portfolio manager of Synovus Trust Co., told Reuters.

MarketWatch noted Oracle’s earnings benefited from its repurchase of about 203 million shares during the quarter.

“Given the way the buybacks reduce share count quarter after quarter, Q2 EPS benefited by about $0.09 from the last 12 months of Oracle’s share repurchases,” said Steve Koenig, an analyst with Wedbush Securities.

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