By adding a series of web products and three tiers of service, the company is now directly competing with AWS and Salesforce and pushing itself as a single cloud provider that can meet all needs and at a more premium level — instead of dealing with multiple vendors for different aspects of their business and leaving their IT department to try to integrate everything.
A slim majority of analysts have ORCL rated as a “moderate buy” or “strong buy,” so there’s some confidence on the Street that Ellison isn’t blowing smoke. However, in its guidance for the next quarter, Oracle warned that hardware sales are expected to slip by as much as 9%, with software license and cloud subscription revenue also slowing, possibly to the point of negative revenue growth for those divisions.
Those new cloud services are in preview mode right now and aren’t expected to be fully online until the first half of 2014. And, as pointed out in Forbes, if Oracle’s cloud ventures prove successful, that spreads revenue over multiple quarters during the term of a contract (instead of an upfront license fee) and could cannibalize its own hardware sales.
In 2013, ORCL has shown a trend of dropping after quarterly reports then slowly creeping back up. Last week, however, the company reported relative stability since Q1, suggesting the worst of the latest earnings reaction is over. That leaves room for substantial upside — at least until mid-December when the Q2 earnings report is expected.
Longer-term, much depends on the pricing of ORCL’s cloud services and a number of factors.
Even if its cloud services and purpose-built servers are a tough sell, they will help stabilize those businesses once they’re in production. Meanwhile, in-memory switching will help retain existing database clients.
With Oracle databases continuing to be the de facto standard — including being used behind the scenes in the cloud with AWS and Azure — my gut feeling is Oracle is in good shape to benefit as cloud computing continues to grow. Call me bullish on its long-term prospects, even if it whiffs again on earnings in December.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.