Oracle Q2 FY2024 Earnings

By Patrick Moorhead - December 20, 2023

The Six Five team discusses the Oracle Q2 FY2024 Earnings.

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Transcript:

Patrick Moorhead: Yeah. So Dan, how did Oracle do, they keep rocking here?

Daniel Newman: Well, if you consider a beating on top and a miss on bottom as rocking, then yes they rocked. But look, Oracle is one of the most steady, stable state companies on the planet. They are what I call the value, they’re the growth end of value. They’re a company that is growing in certain areas, but of course they’re so big and their overall growth tends to be pretty conservative. But they offer div, they offer growth, they offer innovation, but they also offer stability. And so they’ve had a really good year. They’re up high double digits. Let me see here. They were up about 41% year to date on their earnings day. So not a bad investment or return, but Pat, we don’t need to spend too much time geeking out on the fundamentals. Remember, this show is for information and entertainment purposes. We do not offer any stock advice. We’re just talking about earnings as the ground source of truth. They grew 5% year-on-year, 5% Pat. And we say this is about IBM, it’s like 5%’s just never going to get anyone super excited.

But, on the other hand, as our friend Jeff Ford, we like to say, they do have a 50% growth business right now in their Oracle infrastructure for the cloud. That’s really important. What I would say is the most important parts of the earnings and the most important parts to watch are three things, infrastructure growth, SaaS growth, AI growth. So infrastructure growth, OCI grew 50%. Now remember, everyone’s like, “Oh, that’s not that good.” Well the rest of clouds growing, the big cloud providers are growing like 10 to 25. So if we’re measuring I as the same, which we’re not, that would actually mean that they’re gaining market share at twice as fast as the rate of the fastest growth of the big three. Pretty good. On the SaaS end of things, they obviously have a big SaaS portfolio, so even I break that down further, but there are two hot products, Fusion, NetSuite, both still growing mid double digits. That’s good growth. The growth of NetSuite is faster than the growth of Salesforce, straight up. So that’s a good number.

Sorry, I just heard my echo. You have to basically look at that and say, okay, so their SaaS is growing quickly in the market against the rest of the players, so that’s pretty good too. And then the third part is AI. And this part’s a little more opaque to me Pat. So the company certainly seems to have strategy around AI, but what Salesforce, Microsoft and other big software companies have done better than Oracle so far is being able to talk about specifically how they’re monetizing AI. So for Oracle right now, they’re starting to add generative AI features across their portfolio. They certainly have been doing AI for some time. They have a massive data set. So you see a big opportunity for them to do AI, but I don’t fully understand their monetization strategy. So I think if you want to see the next big runup, the growth of cloud is good, the growth of SaaS is better.

And if they could start talking about monetization strategy on their AI, I think that would be really great for their company’s long-term growth prospects. But you did hear their actually chairman, I always want to call him the CEO, but Larry Ellis did mention he expects 50% plus growth per OCI for multiple years ahead. They have a huge migration portfolio of their customers, which they have their own in-house customer base to grow. So that’s part of the reason why this is going to happen. Lastly, and Pat, this was just a fun fact that I pulled out of one of the articles about him, but did you know that OCI, that Elon Musk is running XAI on OCI? Fun fact.

Patrick Moorhead: I had no idea. That is a fun fact. I thought Elon Musk was talking about this in-house supercomputer that he built and rolled out.

Daniel Newman: Sitting in OCI, I don’t know. That was part of the announcements though.

Patrick Moorhead: You done?

Daniel Newman: Yeah, you were talking over me, but I seated the floor to you.

Patrick Moorhead: Yeah, so this is the classic, this is the difference between the way a financial analyst or an equities analyst would look at something versus an industry analyst. I’m looking for percentage growth, I’m looking for quality of customers, and then how it looks toward the future. And like you said, with IS revenue where it’s at, which is incredible at 52%. And then I look at Fusion ERP and NetSuite ERP in the 20s still, and that hadn’t stopped and I think that’s pretty darn impressive what they were able to do even as SaaS growth rates declined, the overall cloud application SaaS revenue is down as a percentage on the peak, I think it was 30%. So if I back out ERP from overall SaaS, that must mean they have a little bit of softness maybe in CRM, in marketing, something like that. But still all in all really good. And that growth rate is eye-popping.

I get back to, I was a big critic of OCI Gen one, OCI Gen two was grounds up built from the bottom up, brand new, bare metal, and it’s really good. And their pricing structure for IAS is super unique as the less differentiated offerings are priced more competitively. And then as you add features, which you would expect, but there are other cloud plays IAS plays where that’s actual reversed. But overall from an industry analyst point of view, I thought they had a good quarter and they have a bright future. If this is the bottom, this is a pretty good bottom, really fricking good.

Patrick Moorhead

Patrick founded the firm based on his real-world world technology experiences with the understanding of what he wasn’t getting from analysts and consultants. Ten years later, Patrick is ranked #1 among technology industry analysts in terms of “power” (ARInsights)  in “press citations” (Apollo Research). Moorhead is a contributor at Forbes and frequently appears on CNBC. He is a broad-based analyst covering a wide variety of topics including the cloud, enterprise SaaS, collaboration, client computing, and semiconductors. He has 30 years of experience including 15 years of executive experience at high tech companies (NCR, AT&T, Compaq, now HP, and AMD) leading strategy, product management, product marketing, and corporate marketing, including three industry board appointments.