Cloud Hangs Over Oracle Conference
We're skeptical of the company's embrace of infrastructure as a service.
We came away from Oracle’s (ORCL) OpenWorld conference and analyst day with new insights into how the company is approaching the secular shift to cloud computing. The most surprising move came in the unveiling of the company’s next-generation infrastructure-as-a-service offering. Previously, Oracle had been reticent about the idea of competing directly with public cloud behemoths Amazon (AMZN) and Microsoft (MSFT), but it appears the company will address this market full bore moving forward. While this move unlocks new opportunities for Oracle, we maintain our $38 fair value estimate, as we remain skeptical of the IaaS strategy. We also maintain our wide economic moat rating.
The bulk of the conversation during Oracle’s analyst day focused on the company’s cloud offerings spanning software as a service, platform as a service, and infrastructure as a service. In particular, the SaaS and PaaS businesses represent the most developed product offerings for the company and the most readily addressable markets in the cloud. The company has now landed 12,500 SaaS customers (which does not account for the pending NetSuite acquisition), and management highlighted a strengthening pipeline that should yield significant growth over the next several years as enterprises migrate business applications to the cloud more aggressively. The company has 8,000 potential customers in its pipeline (excluding NetSuite), while more than 50% of its SaaS customers are new to Oracle. However, the bulk of its SaaS customer base remains in the midmarket, and we continue to believe that Oracle risks its large customers jumping ship to cloud-native SaaS vendors such as Salesforce.com (CRM) and Workday (WDAY), which have proved their scalability. Further, the PaaS pipeline is growing, with bookings more than doubling between the third and fourth quarters last year; this instills confidence that the company will not be caught flatfooted when considering the long term for its middleware customers.
Rodney Nelson does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.