Oracle posts strong quarter built on software license and cloud subscription growth



Oracle announced its second-quarter financial year 2013 results on December 18, 2012 which were toward the top end of its guidance range, and showed particularly good performance in new software license growth. There were signs of improvement in EMEA, with new software license and cloud subscription revenue increasing by 10% in a region that has been distinctly flat over the past few quarters. Regarding its hardware business, Oracle CEO Larry Ellison was bullish on the earnings call about future prospects, with an assertion that the continued revenue decline will turn around over the course of the next two quarters. Oracle is also starting to see the fruits of its investment in sales headcount, with the EMEA results being one example of this, and strong pipelines in its vertical businesses another.

Ovum’s analysis below uses the “as announced” figures rather than a constant-currency comparison, unless specifically noted.

Software license revenues growth across all regions

Oracle’s fiscal 2013 Q2 earnings announcement (all figures on a GAAP basis) showed total revenues up 3% at $9.1bn. Within that total, new software license and cloud software subscription revenues were up 17% at $2.4bn, while software license updates and product support revenues rose 7% to $4.3bn, and hardware systems product revenues fell 23% to $734m. Operating margin stood at 37%, while net income was up 18% at $2.6bn. GAAP earnings per share were $0.53, up 24% compared to the previous year.

This represents a strong quarter for Oracle, and the company will have been pleased to see software license growth across all regions, with Americas up 22%, Asia-Pacific up 13%, and EMEA up 10%. Oracle president Mark Hurd attributed much of the EMEA increase to the company having invested in additional sales headcount in the region. Oracle is also benefiting from globalizing some of its recent acquisitions, with RightNow in the CRM and customer service space a good example of this.

Within the overall software license figures, president and CFO Safra Catz stated that cloud software subscription revenue stood at $230m. This represents 9.6% of new license revenues, or 3.4% of total software revenues (including new licenses, license updates, and product support), and was up 3.6% over fiscal Q1, 2013. Oracle saw continuing demand for cloud-based CRM and HCM solutions, but will want to see a stronger ramp-up of this figure in subsequent quarters.

Oracle is strengthening its vertical industry business

Vertical industry solutions have been part of Oracle’s portfolio for many years, but can sometimes get overshadowed by the technology business (database and middleware, and, more recently, engineered systems). It was encouraging therefore to see this part of the business more prominent on the quarterly earnings call, with Oracle heralding increased headcount in the vertically focused side of its sales force, and reporting stronger sales pipelines on the back of this. Although Oracle does not break out specific vertical revenues, Hurd stated that quarterly growth was up 60% on a year-over-year basis. Ovum’s analysis indicates that financial services is still the largest sector by revenue for Oracle, though the business here is primarily, but not exclusively, technology-led, with communications and retail as the next biggest verticals, all of which are performing strongly. The company is also seeing good growth from healthcare and utilities, which are more recent areas of focus.

Oracle’s recent acquisition of DataRaker, a cloud-based analytics platform for the utilities sector is a good example of one opportunity that Oracle has to grow its vertical business further. The DataRaker service helps utilities companies to exploit the large volumes of data generated by smart meters and smart grids, in processes such as customer support, revenue management, load forecasting, and network operations. In the same way that CRM and HCM are proving popular horizontal cloud-based extensions to the core ERP business, vertically focused solutions such as DataRaker that address specific business challenges, offer both upsell and new business opportunities. We expect to see Oracle offer additional vertical solutions of this type, both through acquisition and in-house development.



Tim Jennings, Research Fellow and Chief Analyst


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