According to IDC, worldwide spending on public IT cloud services is projected to grow 23.5% annually over the period 2013 through 2017, to be worth over $107 billion in 2017. The market was estimated to be worth $47.4 billion in 2013. The growth in cloud markets is estimated to be five times that of the IT industry's growth. In response to the trend, all IT majors have focused their efforts in offering cloud-based subscription services.
Oracle's (Nasdaq: ORCL) third quarter revenues grew 3.8% over the year to $9.32 billion, missing the Street's estimated $9.36 billion. EPS grew 5% over the year to $0.68, but was also short of the Street's projected earnings of $0.70 for the quarter.
By segment, revenues from hardware systems grew 7% over the year to $1.32 billion driven by a 30% increase in their engineered systems sales, which is essentially hardware with pre-installed software. This was their biggest growth in the segment since Oracle acquired Sun in 2010. Revenues from software sales grew 5% to $6.98 billion. Services revenues were down 4% to $1.01 billion.
During the quarter, new software licenses and cloud software subscription revenues grew 24% over the year to $292.0 million. Exadata, Exalytics and Business Intelligence software grew by more than 30% in the quarter. Their Human Capital Management service added 250 customers with growth across all major products including Core HR, Payroll and Talent Cloud, Taleo and Enterprise Resource Planning applications.
For the current quarter, Oracle expects revenues to grow 3.0%-7.0% with EPS of $0.92-$0.99. The Street was looking for an EPS of $0.91 for the quarter.
As part of their cloud expansion efforts, Oracle recently announced the acquisition of Corente, a leading provider of software-defined networking (SDN) technology for wide area networks (WAN). Corente's software-defined WAN virtualization platform accelerates deployment of cloud-based applications and services as it enables customers to provision and manage global private networks securely in a simple, yet secure manner. Oracle plans to leverage Corente's capabilities to deliver a technology portfolio for cloud deployments with SDN offerings that will be able to virtualize both the enterprise data center LAN and the WAN.
As part of their efforts to continue to build their cloud marketing offerings, they recently announced the acquisition of BlueKai, a data management platform mostly used by marketers. The acquisition is estimated to have cost Oracle $400 million. BlueKai has access to more than 700 million profiles in their repository. It uses this information along with the proprietary data provided by their customers to deliver personalized online, offline, and mobile marketing campaigns. The acquisition will help build on Oracle's earlier acquisitions of Responsys and Eloqua.
Despite their efforts, the markets aren't too pleased with Oracle's comparatively slow cloud segment growth. Cloud subscription revenues grew 4% over the year, but the market was looking for a growth of 7%. Their weak cloud performance has caused a lot of analysts to be cautious of the stock. Oracle may be seeing cloud bookings grow 60% over the year, but:
"On-premise software licenses (more than 85% of new software business) continue to face head winds from the cloud, hardware is still saddled with a legacy server portfolio (two-thirds of hardware product sales), and database and middleware, while stable and secure, are relatively mature-growth areas." (source)
Their stock is trading at $37.50 with a market capitalization of $168.6 billion. It touched a 52-week high of $39.85 earlier this month.
Disclosure: No positions.