Oracle was punished in after hours trading for disappointing Q3 results that failed to meet market expectations and were awash with flat or declining performance across multiple areas. Shares fell 8%.
The market wanted revenue of $9.38bn for the quarter ending February 28 2013, Oracle delivered $8.96bn, which was a 1% decline (or flat on a constant currency basis). Net income was also flat at £2.5bn; the operating margin remained at 37%.
Looking at the detail, there are worrying indicators. The all important area of new software licence and cloud subscriptions fell 2% to $2.3bn vs. the expected 2% rise (flat on a cc basis). Hardware sales continued to fall – down 16% this time – and the anticipated turnaround period has slipped from Q4 to Q1. The one bright area was maintenance revenue, which was up 7%, but while this is evidence of customer retention it does little for overall growth and the decline in new license revenue will impact further down the line. President Safra Catz’s comment that the company was “not at all pleased with our revenue growth this quarter” is quite restrained in the circumstances.
Although the company said SaaS revenue grew “well over 100%” there were no revenue figures or additional comment, which is surprising given the string of expensive acquisitions in this area. The limited attention makes us think Oracle is finding the SaaS business tough and that customer retention and acquisition is hard with the likes of Salesforce.com and Workday continuing to apply pressure (see How are SAP and Oracle handling the cloud transition?).
Even the overall outlook was downbeat and covered a wide range e.g. cloud and software license revenue growth between 1% - 11%; overall revenue growth from minus 1% - +4%. Having been blindsided in Q3, Oracle appears to have limited insight into Q4.
We could be seeing the double effect of Oracle struggling to run its SaaS business profitably and not yet getting substantial returns from areas such as Fusion Applications and disruptor technologies including big data, analytics and mobile despite upfront costs. In contrast SAP has many of the same challenges but is still adding growth, although at the cost of the bottom line (see here).