Oracle announced its Q4 earnings Wednesday, and their Non-GAAP EPS was up 10% year over year. In addition to that good news, revenue from both its cloud offerings and on-premise licensing were better than expected. This is great news for Oracle, and investors have rewarded the stock with an almost 10% jump today. Given some of the lack luster recent earnings, how did Oracle pull this off and can it continue?
When it comes to Oracle’s cloud revenue, we know for a fact that Oracle will use its audit arm, LMS, to audit customers and generate revenue. In fact, through documents freely available in the public domain, we saw exactly how Oracle did this to the City of Denver back in January. Oracle audited Denver, and the city ended up signing on to an almost $2m cloud deal because not signing that deal would have been more expensive than just buying the licenses they allegedly needed. Denver fell victim to what we call the ABC Audit – Audit. Bargain. Cloud. We know Denver is not alone. Exactly how many of Oracle’s customers were forced to buy cloud because they were under an LMS audit in Oracle’s Q4 is not known. Was it 1%? 10%? 20%? No one knows but Oracle, and I’m sure they won’t reveal those numbers to the public.
Oracle’s on-premise license revenue was down 5% year over year. However, the market was expecting a bigger decline, so this smaller-than-expected drop was perceived as good news. So, was this really good news? Let’s do a little digging. Rumors have been flying that Oracle is going to do a major reorganization this summer. Reports have noted that Oracle sales may be faced with layoffs as accounts are shifted and cloud is pushed. Given that set of circumstances the Oracle sales teams were even more aggressive than usual for this fiscal year, bringing revenue forward into their just-ended fiscal year from what traditionally would have been revenue in this new fiscal year. How much revenue was brought forward? Again, only Oracle knows. And will this have an impact on their Fiscal 18 numbers? Unfortunately, no one knows the answer to that question.
The real question with Oracle is whether they can maintain the strong earnings. Will their tactics and strategy pay off in the long term or will these moves sputter out if their customers perceive they are being pushed into another corner? Oracle is in a great position because their technology is embedded in most large organizations. It’s very difficult to remove Oracle technology from your operations, and Oracle knows that. Having said that, Oracle is also notorious for their aggressive LMS audits, difficult business practices, and hard-charging sales teams. Many company executives like Oracle’s technology but absolutely hate how Oracle treats them. (When I say hate, I do mean hate.) As these companies transition to the cloud will they find a way to transition away from Oracle or will they follow Oracle to the cloud, either willingly or unwillingly? I guess if you are Oracle maybe you don’t care why they follow you, as long as they follow you. In the end, the winners write the history books.