Courtesy of Benzinga.
Oracle hosted an analyst day presentation on Thursday, which was attended by Katherine Egbert of Piper Jaffray.
According to Egbert, Oracle didn’t offer any new financial details, and the overall sense of the presentation was one of “significantly growing momentum in the cloud,” supported by a “strong organizational focus.”
Reiteration And Support
Oracle reiterated its outlook for $1 billion-plus in additional SaaS revenue in fiscal 2016, starting from a pipeline growth acceleration of 71 percent year-over-year coming into the year. In North America, SaaS revenue now represents the majority of applications revenue (excluding GBUs), while the company’s on premise business overall is expected to continue growing, as less than 1 percent of support revenue has converted to the cloud.
Egbert noted that gross margin for the cloud is expected to ramp to 80 percent over time (from its current 40 percent), while a 60 percent gross margin profile represents double the dollars paid for on premise support.
“As customers move to the cloud, they typically do so in piecemeal fashion: one division, one business unit, or one geography at a time,” Egbert explained. “By offering a suite, Oracle is able to accommodate customers’ cloud needs from wherever in the organization they decide to start. This is particularly true in HCM, which for SMBs is often combined with ERP.”
Egbert continued that Oracle’s management pointed out that it took nearly 10 years to rewrite the apps, middleware and some parts of its database for the cloud. The products were only ready around two years ago, and more time was needed to retrain and refocus staff. In addition, the company’s initial promotional stance should start to expire only in the next few months. Accordingly, the full revenue and bookings impact of the “multi-year windup” to the cloud is expected to only begin in February.
Looking Ahead
Going forward, the company “seems unlikely” to continue offering discounts in the cloud now that it has a “referenceable” customer base.
Finally, Egbert stated that Oracle Chairman Larry Ellison “dismissed” any interest management has in pursuing major M&A activity and prefers to keep the company focused on the near-term cloud opportunity.
Shares remain Overweight rated with an unchanged $46 price target.
Image Credit: Public Domain
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