Must-know: Why Oracle's earnings disappointed yet again (Part 1 of 5)
Oracle earnings came in below expectations
Last week, Oracle (ORCL) announced its fiscal Q4 2014 earnings, in which its revenues of $11.32 billion were below analysts’ expectations of $11.48 billion and its non-GAAP earnings per share of $0.92 were also below expectations of $0.96. The company’s revenue growth of 3.4% and EPS of $0.92 per share both came in at the low end of the company’s own expectations. This isn’t the first time the company has disappointed with its results, and in the last quarter also, the results were below expectations. The disappointing results made investors unhappy, sending Oracle shares down by more than 5% in the after-market-hours trading on Thursday last week. Let’s try to find out the reason behind Oracle’s disappointing results.
Oracle’s still the second-ranked player in the worldwide software market
The Software division of Oracle constitutes about 79% of the company’s overall revenues, making it an important business for Oracle. According to a report from Gartner and as the chart above shows, Oracle’s share of 7.3% is only behind Microsoft’s (MSFT) in the worldwide software market. In the last year, the company overtook IBM (IBM) to take the second position. SAP (SAP) and Symantec (SYMC) are some of the other players in the top five rankings in the global software market. Although Oracle is the second-ranked player in the overall software market, it lags behind competitors in the fast-growing cloud services market.
Oracle’s growth is slow in cloud services compared to peers
Oracle has a presence in all three main segments of the cloud services market—software-as-a-service (SaaS), platform-as-a-service (PaaS), and infrastructure-as-a-service (IaaS). The company has for the first time disclosed a separate breakdown of its cloud services revenues from its core software business. According to the company’s filings, cloud SaaS and PaaS revenues combined increased from $257 million in Q1 2013 to $322 million in Q1 2014 at a growth rate of 25%, while Cloud IaaS revenues increased from $113 million to $128 million, at a growth rate of 13% during the same period.
Although the growth rate of 25% and 13% looks impressive, Oracle’s competitors in the cloud services market are showing better growth rates. Plus, Oracle’s cloud segment contributes only 4% to the company’s overall revenues, which is minuscule. This is the reason the company isn’t able to meet expectations.
Browse this series on Market Realist:
- Part 2 - Oracle’s performance in the cloud infrastructure services market
- Part 3 - Why Oracle thinks it can be the number-1 cloud services player
- Part 4 - Oracle thinks its new 12C database will attract cloud companies
- Investment & Company Information