Oracle Is Aiming For The Cloud

The enterprise software maker reported its fiscal first-quarter revenue on Monday, with its top segment, as well as hardware, missing expectations. Revenue came below expectations as Oracle Corporation (NYSE: ORCL) announced a program during the quarter to encourage customers to adopt its public cloud services in the quarter by reducing or even eliminating its licensing support costs.

Encouraging Migrations To The Cloud

The support rewards program offers customers who make new commitments to buy Oracle Cloud Infrastructure services to earn rewards that can reduce or even eliminate their Oracle on-premises technology licensing support bills.

Fiscal Q1 Figures

For the quarter that ended on August 31^st, revenue increased 4% YoY as it amounted to $9.73 billion. Refinitiv reported analysts expected $9.77 billion, whereas the prior quarter's growth rate was double at 8% respectively.

The two new cloud businesses

The cloud license and on-premises license segment brought in $813 million to the revenue table, down 8% and lower than the $859.7 million consensuses. Cloud is fundamentally a more profitable business compared to on-premise. Management expects operating margins to be the same or better than pre-pandemic levels. The company does not disclose revenue nor operating income from its two services that now make 25% of its total revenue with an annual run rate of $10 billion.

The largest business segment, cloud services, and license support generated $7.37 billion in revenue, which is up 6%, although below the StreetAccount consensus estimate of $7.41 billion.

The hardware unit generated $763 million in revenue, down 6% and below the $778.5 million estimate.

Increased Capital Expenditures

Oracle's capital expenditures exceeded $1 billion, more than doubling compared to the $436 million in the year-ago quarter as executives invested to build the necessary infrastructure to meet expected cloud demand.

To expand and strengthen its footing in the cloud computing space, Oracle, which counts Zoom Video Communications (NASDAQ: ZM) as one of its customers, has been heavily investing in opening more data centers to rent to clients as they shift their operations to the cloud.

 Fiscal Q2 Guidance

For the undergoing quarter, CEO Safra Catz expects earnings per share to come in the range between $1.09 to $1.13 on 3% to 5% revenue growth. Analysts polled by Refinitiv are expecting a 5% revenue growth to result in adjusted earnings of $1.08 per share.

A Crowded Space

Austin, Texas-based company whose shares have risen about 40% year to date is in a crowded space of rivals no other than tech titans Microsoft Corp (NASDAQ: MSFT), Amazon.com Inc (NASDAQ: AMZN), Salesforce.com (NYSE: CRM), and IBM (NYSE: IBM) Corp that makes it much more challenging to benefit from cloud computing trends.

In a nutshell, Oracle fell short of Wall Street expectations because of the incentives it offered to its customers in an attempt to position itself among the clouds.

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