The Cloud

Oracle Blames “Unmotivated” Sales Force for Weak Quarter

But CFO Safra Catz was optimistic with regard to cloud and software licensing sales as newly hired staff look to meet their annual goals.
Taylor ProvostMarch 21, 2013

Oracle CFO Safra Catz cited a “lack of urgency” among the sales staff as the reason for a sluggish third quarter during the technology giant’s earnings call Wednesday afternoon. The company reported a 1% decline in total revenue from the same quarter last year, which left its executives “not at all pleased.”

“Since we’ve been adding literally thousands of new sales reps around the world, the problem was largely sales execution,” Catz said. “Especially with the new reps, as they ran out of runway in Q3.”

New software license revenue was $671 million, down 2% in the third quarter, and cloud revenue was $238 million, off by 1%, which Catz said was partly the fault of the 4,000 new salespeople Oracle has hired in the last 18 months. “They are really geared toward the annual target, with less urgency for Q3,” Catz said. “Everybody’s aimed at Q4, and it really feels like that around here right now.”

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Analysts participating in the conference call questioned Catz, along with chief executive officer Larry Ellison and co-president Mark Hurd on whether the weak quarter was related to a lack of demand for some of the company’s newer products. They denied that was the case. “You have to look at the conversion rate against the context of the material pipeline,” said Hurd, adding that the company closed a number of deals in the cloud-based customer relationship management and human capital management spaces in Q3 that haven’t yet been converted to revenue.  

During the call, Ellison acknowledged that Oracle’s cloud business is still small compared to its overall business, and said the company has become very focused on increasing its cloud presence. He has been vocal in the past about the company’s primary cloud competitors, Salesforce.com and Workday. On Wednesday he stood by his belief that Oracle can “compete and win in the marketplace,” despite launching some cloud-based products last summer, several years later than many competitors in the space. It also acquired some large cloud software companies, including customer experience solution RightNow and talent management company Taleo, last year.

Workday, a cloud-based financial and human capital management software company founded in 2005 by former PeopleSoft CEO David Duffield, reported total annual revenues of $273.7 million, a 104% increase year over year, during a fourth-quarter earnings call on March 7. CFO Mark Peek said he expected up to 53% revenue growth in the first quarter of 2014.

Catz, too, expressed optimism in her outlook about Oracle’s cloud subscriptions and software licenses in the fourth quarter, when, she said, salespeople are more likely to be motivated to hit the annual targets that influence their commissions. Growth in those two areas, she said, is expected to range from 1% to 11% in constant currency.

Investors were less optimistic, as Oracle’s shares dropped more than 9% before noon on Thursday.