Oracle Stagnant in Q1 On Cloud Shortfall

While Oracle’s two co-CEOs both described the Redwood City, Ca.-based company’s Q1 as “solid,” the firm’s latest financials described a tech giant that’s stagnating on a disappointing cloud services business.

Oracle's two co-CEOs, Mark Hurd and Safra Catz, both attributed shortfalls from their previous guidance to a strengthening U.S. dollar.

Chairman and CTO Larry Ellison told investors the company's long-term strategy involves leveraging a new "self-driving" database to gain market share in cloud infrastructure services while driving successes in its overall ERP portfolio.

[Related: Oracle's Q4 Earnings Highlight Major Transformation Spurred By Emerging Cloud Business]

Total revenue for the quarter ending Aug. 31 of $9.19 billion was up a meager 1 percent year-over-year, not adjusted for currency fluctuations. Investors expected $9.24 billion on the heels of a final quarter of fiscal 2018 that generated $11.3 billion.

"Oracle has two strategic products that will determine our future," Ellison told investors.

The first, at the Software-as-a-Service layer, is Oracle's Cloud ERP portfolio. Growth in Fusion and NetSuite ERPs puts the company on track "to become the world's largest SaaS company," Ellison said. "That's our strategy."

The "strategic key" for scaling sales of Oracle cloud infrastructure services is its autonomous database technology, he said.

The 18c database, powering highly automated services that have been rolling out over the last year, will allow Oracle to take on Amazon Web Services at the infrastructure layer of the cloud stack, he said.

"The Oracle database is so much better than other databases that our biggest competitors use it to run their businesses," Ellison said, naming those customers as Salesforce, SAP and Amazon.

He didn't mention that Salesforce and Amazon have both reportedly developed roadmaps to extricate themselves from Oracle entirely in the coming years.

The 18c database, recently made available on Oracle's "second-generation" bare-metal cloud servers, allows customers to lower labors costs and "cut their Amazon bill in half," Ellison said.

"We think these are compelling advantages,” he said.

Oracle will gain share in the Infrastructure-as-a-Service market on AWS, the industry leader, because it is "well ahead of them in infrastructure technology," Ellison added.

Oracle's cloud figures are not broken out with much granularity, and therefore the business is largely opaque. The company recently recategorized its reporting structure, further complicating efforts to draw apples-to-apples comparisons from previous years.

Last quarter, Oracle started grouping all licensing revenue in the category of Cloud and On-Premise Software; and all subscription As-a-Service and support products as Cloud Services and License Support.

The services and support component generated $6.6 billion in sales in Q1, delivering 72 percent of Oracle's overall revenue in a recurring fashion. Analysts surveyed by FactSet, however, predicted $6.68 billion, following a Q4 that saw $6.77 billion.

Catz said Oracle's cloud services business grew 4 percent year-over-year in constant currency and would have come in at the high range of guidance if not for currency headwinds.

Compared to the same period of the previous year, overall cloud revenues grew in all regions, Catz said. Cloud-based ERP grew faster than 30 percent, verticals faster than 40 percent, and public Platform-as-a-Service and IaaS faster than 20 percent.

Oracle did $867 million in cloud and on-premises licensing business in Q1—a stark decline from the $2.5 billion reported in that category in the trailing quarter.

Catz offered guidance of 0 to 2 percent growth for the coming quarter, telling investors Oracle expects sales to ramp in the second half of the year.

Earnings-per-share of 71 cents beat analyst expectations of 69 cents, according to Thomson Reuters.

But an earnings beat wasn't enough to keep Oracle stock from slumping 4 percent to $47.23 in after-hours trading on Monday.

In response to a question from an investor, Hurd gave an update on the status of Thomas Kurian, Oracle's highly respected product chief who said he was taking an indefinite leave from the company a couple weeks ago.

"Thomas is a good guy, works awful hard, he's taking a break and we expect him back," Hurd said. The co-CEO declined to offer a time frame anticipated for Kurian's return, or whether the product chief would be back in time for Oracle's OpenWorld conference that kicks off next month in San Francisco.