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Oracle could be 'a 3rd or 4th player' leading web services: Analyst

Futurum Research Principal Analyst Daniel Newman joins Yahoo Finance Live to break down Oracle earnings, competition among Big Tech companies, and the outlook for cloud services.

Video Transcript

- And an Earnings Alert now, shares of Oracle are trading up fractionally after the company reported mixed results for a deeper dive into the company's first quarter earnings. We're joined by Daniel Newman, Futurum Research Principal Analyst. Good to see you, sir. Big picture, your reaction to the Q2 earnings report.

DANIEL NEWMAN: Yeah, it was a mixed result in terms of top and bottom line. But I think Oracle's predictable nature made it a really good bet that it was going to have a good result. And for me, it's a cloud story. Everyone's putting eyes right now on, is the company able to execute in the areas that Larry Ellison has been talking about, and that's cloud infrastructure. And that is going to be on its SaaS levels with its NetSuite and its Fusion ERP.

I think the results are really strong coming out the gate, just having a few minutes to look at them. You saw 45% in the cloud, you saw 52% on infrastructure, and that's in line and actually a little bit ahead of some of the major infrastructure players, including AWS and Azure this quarter. So first reaction is good. Smaller numbers for now, in terms of their infrastructure, but it shows a good trajectory.

- Yeah, Dan, that cloud number is very strong in. That 45% jump that you referenced, $3.6 billion in cloud revenue during the quarter. What about the impact of the strong dollar? We know that it was a headwind here for Oracle in its most recent report. But what does that headwind look like over this current quarter and then, of course, looking ahead to the fourth quarter of the year?

DANIEL NEWMAN: Yeah, I think all the big tech CEOs are singing the same tune. They're all talking about their growth in constant currency because FX has proven to be a little bit unpredictable. I think this will continue to be a story as we work through these potential recessionary fears and as we work through this stronger dollar and the impact it has on companies like Oracle that have a really large global business with a lot of distribution.

I expect it to continue to be a story. I don't think it's going to change. But I think Oracle's head down. I think their focus is, if we continue to grow, we continue to distribute into more areas, like their cloud and SaaS offerings, and even their recent success they've had with their database business on HeatWave.

Like I said, it's just really steady. And for those out there from the investment lens, they're looking at the business and they're saying, hey, it's a business that's been real stable through the tech wreck, the stock has held up incredibly well, but it's also a Div stock. The company continues to support on that layer. And they're also showing those signs of growth in their growth areas that people that want those more aggressive names might be able to get behind.

- Shares down about a little north of 12% year to date. Where are they in terms of the cloud in relation to their competitors, notably AWS and Azure?

DANIEL NEWMAN: Yeah, I've been pretty outspoken that their first gen public cloud offering had a lot of issues. But their second gen offering has been much more compelling. Every quarter, the company comes out with a number of growth stories. Larry Ellison loves to talk about their customer wins. And I expect they're going to continue to do that this quarter.

In terms of overall market share and size, I mean, Amazon's AWS business is nearing $20 billion a quarter. So you can use that as a comparison. It's still much earlier days. You're talking about just nearing a billion.

But from a growth rate standpoint, if you compound it and Oracle can continue this momentum, you've got to start to say, hey, this company definitely has the potential to start to be that third, fourth player consistently. And Oracle doesn't like to be third and fourth. So just like Microsoft and AWS, I expect they're going to continue to challenge, they're going to keep trying to innovate. But it's going to be a tough road to leapfrog those big two.

- And Daniel, look, we just had the one year performance on the screen. They're off just about 14% over the past 52 weeks. What's going to be the next catalyst for Oracle? Is it all about the cloud or is there something else here that can push this stock higher?

DANIEL NEWMAN: Well, I think the stability of its core business is something that people are going to like. But of course, when we start to see potentially interest rates flatten out or even start to come back down, what kept it at only 14% down when other names are down 40% and 50% is also what will likely keep it from jumping. We all remember when it ran up to close to 100 not that long ago and there was a lot of excitement because of some of the early announcements, cloud growth.

I think the health care cloud-- now, I know you said not cloud, but I think that health care cloud, that Cerner deal, is going to be pretty exciting as we start to see what that becomes. We all know the health care industry is riddled with challenges and minutia and red tape. Can Oracle somehow leverage its great depths in data and, of course, in infrastructure to start to streamline that to, make that better?

I think they made a $27 plus billion bet for a reason. But I do actually think it is a cloud story. So call it health care cloud, call it public cloud and infrastructure, I think that continued growth is what investors can get excited about.

- We've got a 5:00 call. If you had a question, what would it be?

DANIEL NEWMAN: I want to know how the company can continue to maintain these growth rates. They have great competition, diverse product sets, Azure, AWS, and of course, we've seen Thomas Kurian at Google really amping it up. And so getting 50% growth at a billion is exciting, but how is the company going to continue to compound growth of this cloud business and do it as competition heats up and as they get more toe to toe and face to face? That's going to be the question, I think, for a lot of investors.

- Dan, you mentioned that Cerner Corporation, $28 billion acquisition, that Oracle has made, it sounds like you think that it's paying off. Do you think we'll see more acquisitions, more M&A activity, from Oracle down the line?

DANIEL NEWMAN: I think our research is showing that health care clouds and other financial services clouds, highly regulated industries bring a lot of complexity. So if a company can take a best-of-breed approach to a specific industry and then couple that with, of course, the scale of offering a cloud that is compelling and meets all that compliance and regulatory, I think people are going to be listening. I think Oracle has the balance sheet to potentially make these kinds of deals. I think we've seen across the space, it's an either buy or build strategy coming from all the big cloud providers. Oracle decided to buy in this case. And I think in health care, that was the only way in.

- All right, Dan Newman, always great to see you, Futurum Research Principal Analyst.