Oracle stops reporting cloud numbers after growth tails off

Are IT leaders ditching their least-loved software vendor as they shift to cloud?

Oracle has stopped reporting growth in its cloud business after several quarters of disappointing numbers - culminating in a sharp fall in its stock price after it reporting its fourth quarter figures this week.

While its fourth quarter results exceeded expectations, the company's reluctance to reveal its cloud numbers - as it once did - has stoked-up investor cynicism.

Fourth quarter revenues eked up 3.3 per cent to $11.3 billion and net income was up 5.5 per cent to $3.41 billion, for a period that co-CEO Safra Catz described as "a terrific quarter". But investors were more concerned about the company's cloud computing strategy, while pointing out that its revenue growth was closer to one per cent in constant currency.

Catz claimed that it had become difficult to separate out cloud computing revenues due to a mix-and-match approach the company had taken between traditional on-premise software licences and cloud subscriptions.

"We have now labelled new software licences as cloud licence and on-premise license. And we've combined cloud SaaS, plus cloud PaaS and IaaS, plus software licence updates and product support into cloud services and licence support," said Catz.

She continued: "Customers are entering into large database contracts where some of those database licences are to be deployed on-premise, while other database licenses are used in the cloud. Previously, all those licences and its related support revenue would've been counted entirely as on-premise, which clearly it isn't."

A number of analysts, such as Jefferies & Co's John DiFucci, suggested that investors feared it was obfuscating its numbers in order to hide its weaknesses in cloud computing.

Catz, though, claimed that "the cloud number is $1.7 billion" and added that the company was "right where we said we would be". However, the latest figures cap several quarters of declining reported cloud growth, while Amazon and Microsoft, in particular, have continued reporting strong cloud growth.

Catz asserted that bundling cloud and legacy software licensing into one reporting category reflected customer demands for more flexibility from the company.

However, analysts pointed out that if cloud subscriptions were growing strongly, it is unlikely that the company would be reporting just one per cent revenue growth, while Amazon Web Services has been achieving 40 per cent or quarterly growth since the second quarter of 2014.

"In the end though, it doesn't really matter that much what bucket you put the revenue in…the real question is, how much growth is there in the entire business? The answer at the moment is not much," JMP Securities analyst Patrick Walravens told Market Watch.

Analysis

Oracle is not a well-loved company. Indeed, it is arguably the least-loved software company since Charles Wang's Computer Associates.

At Computing events, IT leaders regularly cite Oracle as their least-favourite vendor. In particular, CIOs cite the company's aggressive licence audits, which to many seem more like an excuse to shake them down on the most arcane points of the licence, rather than an honest attempt to ensure a fair price is paid.

They also cite high costs, especially for locked-in products such as the Oracle database, and rough ‘forced marches' that have largely arisen over the various overlapping enterprise resource planning (ERP) acquisitions the company has made in the past in a bid to dominate the sector.

Hence, given a choice, many customers would rather move to any cloud rather than Oracle's. Founder Larry Ellison will need to engineer an attitude re-adjustment across the company, and fast, if it isn't to become a legacy software company with an also-ran cloud offering.