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Oracle Q3 Meets Estimates as It Weathers Currency Effects

When the U.S. dollar is this strong, flat revenue is as good as up.


Shares of software giant Oracle are rising in after-hours trading following the company’s Q3 earnings report, which came in more or less in line with the estimates of analysts.

Oracle posted per-share earnings of 68 cents on revenue of $9.3 billion. Earnings were right on the mark with the consensus view of analysts, who had expected 68 cents, though sales missed the target of $9.46 billion. Revenue was unchanged from the year-ago period, though after adjusting for the effects of currency exchange rates, sales would have grown 6 percent. Currency effects also hurt earnings to the tune of six cents a share.

Oracle shares rose by more than 3 percent on the Nasdaq after the results were posted.

Software and cloud revenue rose 1 percent to $7.2 billion, or 7 percent on a constant currency basis. Software-as-a-service revenue rose 30 percent to $372 million. Hardware sales fell 2 percent to $1.3 billion, but grew 5 percent after adjusting for currency effects.

“Once you normalize for exchange rates, it was a very strong growth quarter for us,” CEO Safra Catz said in a statement.

Total revenues were $9.327 billion, amounting to a tiny $20 million increase over the same period a year ago. Back out the currency effects and Oracle would have posted closer to $9.9 billion.

Breaking down the numbers, Oracle’s biggest source of revenue is its traditional business of selling software license updates and product support, which at $4.7 billion amounted to about half sales. New software licenses came in at nearly $2 billion or 21 percent of sales. Hardware sales at $1.3 billion amounted to 14 percent.

Meanwhile the cloud business that grew so fast amounted to only 4 percent of sales. But it’s also worth nothing that like every other cloud software company, Oracle is spending big to win its sales too. Expenses associated with selling cloud software and platform services rose 81 percent year-on-year to $203 million. And while that’s just a 2 percent drop in a $5.9 billion operating expenses bucket it’s interesting to see that Oracle appears to be able to grow its cloud businesses at an operating profit.

On a conference call, Catz said Oracle expects to earn between 90 and 96 cents and that it expects revenue to grow year-on-year in the range of 1 percent to 6 percent for the quarter ending in May. Analysts expect a per-share profit of 94 cents on sales of $11.43 billion. She also said currency effects will continue to be a challenge.

Of course it wouldn’t be an Oracle earnings call without some barbs at the competition, and there were several for, SAP and Workday.

Ellison predicted that this year Oracle will sell more software-as-a-service subscriptions than Salesforce, revamping a previous prediction where he thought that would happen in 2016. “I was way too conservative with that prediction,” he said. Specifically Ellison is saying that Oracle will add $1 billion in new software- and platform-as-a-service revenue during the calendar year, which is in line with a Salesforce forecast. “It’s going to be a close race to see who sells, more and you won’t have to wait long to find out,” Ellison said.

Ellison also slammed SAP’s new Hana S4 database for containing “30 year old code,” adding that “it’s the same old SAP as before.”

CEO Mark Hurd also took a turn bashing SAP and also stomped on Workday. Commenting on Oracle’s competitive stance versus SAP in selling its cloud-based ERP or enterprise resource planning software, which companies use to manage the detailed financial aspects of their operations, Hurd couldn’t come up with a stat to compare its results to that of SAP: “I would give you a stat on SAP, but we never see them” competing for for cloud ERP deals.

About Workday he did have stats: Oracle added nearly 800 new customers for its software-as-a-service products, while 530 expanded the SaaS products they already have. Oracle added 220 new customers for its human capital management (HCM) suite. All in, Hurd said, Oracle is adding customers at about 10 times the rate that Workday, a competitor in the HCM business. Additionally, he said 75 percent of those SaaS customers are new Oracle customers.

In hardware sales, Hurd said that Oracle sold 1,000 of its so-called engineered systems, specialized computers designed to run Oracle software. Hurd predicted that Oracle will become the market leader in high-end servers, where it competes with Hewlett-Packard and IBM, however it’s worth nothing that this has been a declining business for all players for years.

Another thing to make shareholders happy: Oracle’s board boosted the dividend to 15 cents a share, amounting to a 25 percent hike over the previous dividend of 12 cents. The company also bought back $2 billion worth of its shares.

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