Oracle Belatedly Embraces the Cloud: But is There Enough Revenue Up There?


Shutterstock photo

Back in the day, Oracle ( ORCL ) CEO Larry Ellison viewed IBM ( IBM ) as both an inspiration and a chief competitor. And over the past decade, Ellison has built a highly successful facsimile of IBM at its pinnacle by acquiring software and hardware companies at a breakneck pace, packaging and selling them together, milking every last cent of profit out of them while cutting costs and then riding the tailwinds of lucrative maintenance contracts to bankroll his yacht and island-buying habits.

For the better part of the past six or seven years -- until recently -- Ellison and Oracle did everything they could to disavow the relevance of on-demand software applications and their providers -- most notably Salesforce ( CRM ). But reality got in the way of his dismissive comparisons of software-as-a-service staying power to the fleeting popularity of acid-washed jeans.

And even if a compelling argument can be made that Salesforce and other cloud computing stocks are recklessly overvalued, there's no denying the popularity of their wares among the enterprise clients Oracle once owned, took for granted and now is desperate to reclaim or at least retain.

Along those lines, it's important to note that Workday, a provider of on-demand human capital management software and another thorn in Oracle's side, is prepping a $500 million-plus IPO of its own in the near future. In the past three months, Oracle shares are up nicely and much of these gains can be partially attributed to Oracle's cloud computing about-face. Just as IBM, at the height of its powers, ignored the rise of the PC and, later, PC vendors were in denial about the looming threat from mobile phones and tablets, Oracle was too infatuated with the installed software model to be bothered with this on-demand mishagas.

ORCL data by YCharts

The other part is that, just like IBM for decades, Oracle has become something of a safe haven for buy-and-hold investors -- a name they know and can trust (usually) for steady if unspectacular gains over a prolonged period of time, as seen in a stock chart .

ORCL data by YCharts

Flash forward to a couple weeks ago when Oracle somewhat "disappointed" investors with another in a series of more frequent sales disappointments (revenue down 2% year-over-year; has now missed its own guidance in five of the past nine quarters) when the company touted the fact that "new software licenses and cloud software subscriptions revenue was up 5% to $1.6 billion" in the quarter, that its cloud business is closing in on a $1 billion annual run rate and that this cloud fad thing would (along with engineered systems) "drive Oracle's growth for years to come."

Well, it better because the butter that Oracle and its shareholders have relied upon for years is starting to turn. JMP Securities analyst Patrick Walravens is forecasting a mere 6% increase in maintenance revenue in the current quarter -- down from a 15% surge in the year-ago quarter. Clearly, growth at Oracle's size is hard to come by.

ORCL Revenue TTM data by YCharts

Along with spending more than $3.4 billion to snap up on-demand software firms Taleo and RightNow Technologies this year, Oracle this week unveiled plans to add infrastructure-as-a-service to the Oracle Public Cloud to take on the likes of Amazon ( AMZN ) and Google ( GOOG ) and said it will begin building and operating cloud services inside client data centers.

"We think we are ideally positioned with database software, and middleware and applications all in the cloud," Ellison said.

But to investors, this revamped strategy and newfound appreciation for cloud computing might be beside the point.

Cowen Group's Peter Goldmacher recently told that Oracle's recent success and popularity may be more a case of choosing between the lesser of multiple evils.

"People think 'I can own this name. It's not expensive. I don't love it, but I hate it less than other mega-cap tech names,'" he said, a sentiment shared by many investors for many years not so long ago about Big Blue.

Larry Barrett is an editor for the YCharts Pro Investor Service which includes professional stock charts , stock ratings and portfolio strategies .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: investing , Stocks
More Headlines for: AMZN , CRM , GOOG , IBM , ORCL

More from YCHARTS




Find a Credit Card

Select a credit card product by:
Select an offer:
Data Provided by