Hazy Results, Prospects for Oracle

Fourth-quarter revenue rose 3% versus the prior-year period to $11.25 billion, just ahead of our internal estimate. Management reclassified its revenue segmentation for the second time in the last year to better capture the impact of firm’s bringing their own licenses to the cloud, though it obscures the individual cloud segment performance. Cloud services and license support revenue rose 8% year over year to $6.8 billion. The firm has begun to see customers migrating licenses to Oracle data centers, meaning those customers will continue to make maintenance payments and Oracle will take hosting responsibilities for the software. While this strategy will pay dividends with certain customers, we do not view this as a compelling strategy for many enterprises, particularly if they cannot take full advantage of multitenancy in these environments. Further, cloud revenue was $1.7 billion (based on the firm’s prior revenue classification system), which was roughly in line with our below-consensus expectations. We were encouraged to hear management report 62% bookings growth for NetSuite and 9% growth in its database license business, but it will be difficult to ascertain the impact of this performance under the firm's new reporting standard moving forward.

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