Editor’s note: New reporting offers greater insight into the individual performance of Oracle’s SaaS and PaaS businesses as cloud confidence grows, says Technology Business Research Analyst Meaghan McGrath. Oracle has a major presence in the Triangle area following the acquisitions of Tekelec in Morrisville and NetSuite, which had acquired Durham-based Bronto Software. Oracle acquired NetSuite last year. Bronto was sold in 2015.
HAMPTON, N.H. – Oracle’s F4Q17/C2Q17 earnings this week release provided unprecedented insight into Oracle’s financial performance and ongoing transformation into a cloud-first vendor.
As the company reported Cloud SaaS revenue and costs separately from PaaS, and moved PaaS into the same line item as IaaS, we gained insight all three cloud businesses simultaneously. Although shy of the $1 billion mark, Oracle’s SaaS business scaled to $964 million in the quarter, and has accelerated year-to-year growth from 50% to 67% over the last four quarters with the support of the NetSuite acquisition.
- VIDEO: Watch a report about an Oracle customer’s cloud experience at: https://www.youtube.com/watch?v=Y9XZcHzWjS0
Also supplemented by inorganic improvements, Oracle’s SaaS gross margin improved more than 10 percentage points over the past four quarters, but has consistently been outperformed by PaaS gross margin, indicating that PaaS is the most profitable of the three cloud segments. Most importantly, while PaaS growth figures given during the prior quarter’s earnings call were difficult to reconcile with indications of positive NetSuite performance, the inferred PaaS revenues from the reporting shift reassure us that Oracle’s SaaS line has marginally improved with both organic and inorganic additions.
In addition to the cloud revenue presentation changes, Oracle also offered concrete insight into the performance of its collective applications business (SaaS + on-premises applications software revenues) and platform and infrastructure business (PaaS and IaaS + on-premises database and middleware software revenues).
This reporting confirmed that Oracle’s collective applications business has grown single-digits amid on-premises revenue declines, while the platform and infrastructure business has seen both lower collective growth and better on-premises performance.
As Oracle’s legacy customers, like AT&T, commit to migrating their on-premises databases to cloud alternatives, Oracle’s platform and infrastructure business will begin to perform more similarly to the applications business.
Oracle is still near the relative beginning of its long transition, with both the PaaS and IaaS businesses yet to reach scale, and even the SaaS business arguably immature.
However, concrete proof that the SaaS business is scaling effectively in concert with the PaaS business, and large enterprise commitment to move Oracle databases to the cloud, prove that Oracle will continue to scale its cloud segments beyond their current 12% of corporate revenue, as both its on-premises applications and database foundation erode.