Oracle's Ellison Sees 'Fighting Chance' To Beat Salesforce In Race To $10B SaaS Revenue Mark

Oracle reported fourth-quarter and full-year fiscal 2016 earnings Thursday, and the software giant gave investors dazzling figures to illustrate the growth of its various cloud offerings.

Oracle's Infrastructure-as-a-Service, Platform-as-a-Service and Software-as-a-Service businesses combined for $859 million in sales during the quarter, up 49 percent from last year's quarter.

Oracle Chief Technology Officer Larry Ellison said his company's cloud business is defying conventional wisdom by continuing to accelerate even as it expands, the result of its presence in areas of the SaaS market where rivals aren't competing.

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"We think we have a fighting chance to be the first SaaS company to make it to $10 billion in annual revenue," Ellison said on the call.

Oracle, the No. 2 vendor in SaaS, had total SaaS and PaaS revenue of $2.2 billion during fiscal 2016, up 49 percent from the year before. Salesforce, the top SaaS vendor, had revenue of $6.67 billion for its fiscal 2016 and expects fiscal 2017 revenue of $8.08 billion to $8.12 billion.

Public cloud IaaS leader Amazon Web Services, which offers a cloud database service that competes with Oracle, said in April that it's on track to hit $10 billion in revenue this year.

Meanwhile, Oracle's gross margin for cloud PaaS and SaaS came in at 57 percent during the quarter, up from 40 percent during last year's fourth quarter. In a conference call with investors, CEO Safra Catz said Oracle is on track to eventually attain an 80 percent gross margin for its cloud services.

Although cloud accounted for around 8 percent of Oracle's quarterly revenue, Catz said she expects this business to continue growing even faster in Oracle's fiscal 2017. "We are a force to be reckoned with in the cloud," she said on the call.

Ellison also said Oracle is seeing "a huge amount of demand" for IaaS from its existing SaaS and database customers, which wish to avoid the data migration costs associated with AWS and other cloud vendors.

In addition, Oracle has made significant data center efficiency advancements and can now offer lower costs, better security and superior reliability than any other provider in the market, according to Ellison.

Troy Lutes, a principal in the Oracle practice at PricewaterhouseCoopers, said he's not surprised by the impressive cloud growth figures.

"Oracle has set forth a game changing strategy, and been laser focused on executing this strategy," Lutes told CRN. "The market has enthusiastically validated this strategy and embraced Oracle's products. A who's who list of brands have committed to the Oracle cloud this year."

While some partners and analysts have questioned Oracle's methods for calculating cloud business growth, CEO Safra Catz said the vendor is "completely confident" that its cloud accounting is "100 percent accurate." If anything, she said, Oracle's cloud accounting may actually be conservative.

Earlier this month a former Oracle accountant filed a whistleblower lawsuit against the Redwood Shores, Calif.-based vendor, alleging that her managers instructed her to inflate cloud sales figures without evidence of corresponding billings. Oracle has denied the allegation and said it plans to countersue.

For the quarter ended May 31, Oracle's revenue was $10.6 billion, down 1 percent from last year's quarter, and profit of $2.81 billion, or 66 cents per share, up slightly year over year. Wall Street analysts were expecting 82 cents per share and revenue of $10.46 billion.

Oracle's traditional on-premise software business saw revenue decline 3 percent during the quarter, to $7.58 billion. Sales of new software licenses fell 12 percent during the quarter, to $2.76 billion, while hardware sales dropped 11 percent year over year, to $725 million.