Bold Claims in Oracle’s FY18 Q2 Earnings

It is never too early to start preparing for Oracle’s year-end sales push with their fast approaching 2018 fiscal year end at the end of May. The fourth quarter typically represents Oracle’s largest in revenue and is accompanied by the pressure of exceeding annual sales goals for Oracle reps. So, what does Oracle’s Q2 earnings mean for Oracle customers in Q4?

Share Price Down.  Determination Up.

While Oracle experienced revenue growth, it failed to meet Wall Street’s forecasted expectations which led to a decline in share price.  Specifically, Oracle’s total Cloud revenue for Q2 was $1.52B, representing 16% growth from the prior year, but analysts had forecast $1.56B.  SaaS Cloud revenue was $1.12B (12% growth) but analysts forecast $1.14B.  Both key Cloud revenue metrics fell short of expectations, which created a sell-off of Oracle shares and a stock price decline.

As we have stated numerous times and covered in greater depth in a recent webinar, the success of Oracle moving forward is tied to its ability to sell and deploy Cloud solutions.  When they fall short, the stock price takes a hit.  Customers can now expect an even hungrier and more aggressive Cloud sales push from Oracle to close deals by the end of May.

World’s First Autonomous Database

Larry Ellison announced that Oracle will launch the first autonomous database in January 2018, which will be a key driver to accelerate growth in Oracle’s PaaS and SaaS businesses and add to database licensing revenues.

Oracle claims that machine learning is what makes the Oracle database totally automated in that it does not require humans to manage the database, delivering 99.995% system availability.  Ellison also stated that if a workload running on Amazon’s Redshift is moved to Oracle’s database, a customer’s Amazon bill will drop by 80%.  Ellison backed this up by saying that Oracle will be providing its customers with written SLAs that guarantee that using Oracle Cloud will cut an Amazon customer’s database bill in half.

These are some very bold claims, and if true, could be a game changer for Oracle.  It will be interesting to see how the market reacts and adopts Oracle’s autonomous database over the coming months.  But more importantly, Larry Ellison just put a lot of pressure on his organization to deliver results in both the database claims and the growth in SaaS and PaaS Cloud revenues.

Biggest Sales Pipeline Ever

Mark Hurd touted the tremendous sales pipeline Oracle has and stated that it is the biggest ever, expecting to sell around $2B in SaaS annual recurring revenue (ARR) over the next four quarters.  Hurd further stated that he believes no other suppliers will be even close to this level of bookings over the next rolling four quarters, and then reiterated that when a customer migrates their applications from on-premise to SaaS, Oracle’s ARR increases three times or more compared to the annual support revenue stream.  These are very aggressive numbers.

There has not been a big migration yet from on-premise to Cloud from Oracle’s installed base.  For Oracle to meet these claims, they are going to have to find a way to get their large base to start the migration, and they believe the autonomous database will be a catalyst to do so.

Customer Implications

Oracle just ramped up the pressure on themselves to drive tremendous Cloud growth.  Their stock price took a bit of a hit, so they now clearly know how critical it is to meet Wall Street’s expectations.

Customers who have done their preparation and have developed a sound negotiation strategy and approach will have significant leverage in negotiations with Oracle — not only buying Cloud subscriptions, but also on a more robust deal that may include on-premise software, hardware, and even services and training components.  Oracle will be prepared to negotiate if customers know what to ask for and are not fearful of an audit because they have conducted the necessary due diligence to be confident they are in compliance.

For customers who are not prepared, are uncertain what an audit may reveal, and do not want to execute a new deal of any kind, Oracle will be aggressively utilizing their audit threat leverage to drive Cloud deals as well as unlimited license agreements and renewals (ULAs) by the end of May to avoid the unpleasantness and risk of an audit.  Oracle sales reps will look to create fear and uncertainty in customers’ minds, and once this settles in and the customer is seeking any possible way to avoid an audit, the Oracle sales rep will come back with a solution that includes a sizeable Cloud commitment and possibly a ULA to make the audit go away.

Oracle will also use a softer approach that allows customers to take support fees for on-premise licenses they are not using and exchange them for credit as part of a multi-year Cloud commitment.  We believe there will be some flexibility to negotiate the Cloud credit exchange, but once again, for customers who do not have a solid understanding of their Oracle license entitlements and deployments, they will be at a significant disadvantage in negotiating with Oracle.

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