Good Context to Oracle’s Q2 Earnings
I always cast an interested eye over Oracle’s quarterly earnings announcements. The stock figures don’t really concern me, it’s the commentary given alongside the release that can be a really interesting read. The Q2 announcement last week gave us more than most.
This quarter, Oracle beat Wall Street’s forecasts by a large margin. As a result of this, Oracle’s stock rose ~16%, reportedly its biggest gain in 20 years, to an all-time-high. The huge leap also added $16bn to Larry’s personal wealth and took him past Google co-founders Larry Page and Sergey Brin to be the world’s fifth-richest person.
Why was this quarter so successful? There was strong growth in cloud-based applications, with 35% growth in Fusion ERP and 29% growth in NetSuite ERP, which serves smaller companies. Oracle’s cloud business overall was up 22%, and CEO Safra Catz said the company expects growth to accelerate to the mid-20% range in that part of the business by the end of the year.
I’m usually more focussed on the HCM side of things, but a rising tide lifts all boats and Larry explained the future is incredibly positive in ERP:
We had 7,500 customers in Oracle on-premise, their ERP made up of E-Business Suite, PeopleSoft and JD Edwards. Only 1,000 of those 7,500 have moved to Fusion Cloud ERP. Now we have not lost any of these customers to competitors. We expect all the remaining 6,500 to move to Fusion ERP, but it hasn’t happened yet. That’s all upside.
He then went on to explain that Fusion ERP now has 8,500 customers – so (from above) 1,000 of those came from the legacy on-premises business, and 7,500 came to Oracle from competitors’ installed base. Being Larry he obviously spoke about the Cloud ERP competition: SAP ERP isn’t a ‘true Cloud product’ and Workday ERP ‘has some customers but very few are live’. It certainly seems that in Cloud ERP, Oracle is benefitting from having much less solid competition than there is on HCM.
It’s easy to follow Larry’s logic and – if many of those remaining 6,500 on-premises ERP customers switch over the next 5 years or so, and Oracle continues to pick up new customers from the competition – his prediction that the Cloud ERP business can grow from $5bn to $20bn+ doesn’t seem that much of a stretch.
With strong cloud revenue growth, Oracle easily beats earnings targets
Larry Ellison is now richer than the Google co-founders after big Oracle run-up
A $20 billion business within 5 years – the cloud ERP worldview according to Larry Ellison