Oracle Looks To Database Customers To Drive Rapid Cloud Growth

Oracle's cloud strategy is to migrate its 50 percent share of the database market to its cloud infrastructure, which will rapidly scale share in the Infrastructure-as-a-Service market, Oracle Executive Chairman and CTO Larry Ellison told investors Monday during the company's 2019 second-quarter earnings call.

That strategy relies on maintaining a technological lead in the database, which Oracle's autonomous databases have extended beyond anything the company enjoyed over the last several decades, Ellison said.

But only in the last year did Oracle's second-generation cloud infrastructure reach maturity to host those self-driving databases, which opened the gates to what the company expects will be a torrent of migrations from on-premises to the Oracle public cloud and Cloud at Customer.

[Related: Oracle Stagnant in Q1 On Cloud Shortfall]

"The issue has been when will we get our cloud infrastructure solid enough to host our database," Ellison told investors. "And the answer is we did that less than a year ago.

"We have to deliver that autonomous database on first-class cloud infrastructure to be successful in the business. And we now, finally, have that with our Generation 2 cloud," Ellison added.

Autonomous database and Cloud ERP applications are the two products that will determine the future of Oracle, Ellison said.

The ERP business has been a particular bright spot, co-CEO Mark Hurd said during the earnings call, noting that solution often leads customers into larger deals for HCM and other business software.

Second quarter was "perhaps the best apps quarter we've had just in terms of bookings, breadth of bookings across the portfolio," Hurd said.

ERP and HCM are delivering $2.6 billion in annualized Software-as-a-Service revenue, Hurd said.

In the second quarter of 2019, which ended Nov. 30, Fusion Apps revenue grew 34 percent year over year; Fusion ERP by 44 percent; and NetSuite ERP by 25 percent.

The success of those applications will thrust Oracle to a leadership position in the cloud, Oracle executives said.

"If we did nothing but run Oracle applications in Oracle cloud, and all these Oracle ISV applications, we would be more than 10 times bigger than Amazon," Ellison said of his primary antagonist, Amazon Web Services. "If that's all we did. But, of course, our ambition is to do more than that."

Amazon has made a lot of noise in the database world, Ellison said, but the cloud leader's two flagship databases, Aurora and Redshift, are both "very old open-source systems," Ellison said.

Amazon's main innovation with database was putting those systems in its cloud.

"They did that long before we made the Oracle database available in the cloud," he noted.

But there's "no way a normal person would move from an Oracle database to an Amazon database. It's just incredibly expensive and complicated," he said, and requires abandoning technological advantages.

Amazon has been attempting such a transition, Ellison said.

"Jeff Bezos gave the command, 'I want to get off the Oracle database'," Ellison said of Amazon's founder and CEO.

Amazon's been working on that project for a few years, he said, and despite its strong motivations, the e-commerce giant has yet to complete the work.

"Nobody else is going to go on that forced march onto the Amazon database if Amazon can't even get there," Ellison said.

Oracle's overall financials saw a slight decline in revenue, which was enough to beat analyst expectations.

Overall revenue of $9.56 billion was close to stagnant, compared with $9.59 billion from the previous year. But analysts had expected $9.52 billion.

Adjusted earnings per share of 80 cents beat expectations of 78 cents, coming in at the high mark of Oracle's guidance.

Those revenue and earnings beats sent Oracle shares up from a market close of $45.73 to 47.90 in after-hours trading—a gain of roughly 4.7 percent.

Earlier this year, Oracle recategorized its reporting structure, 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.

In the second quarter, Cloud Services and License Support remained flat from the previous sequential quarter, but up 3 percent year over year, at $6.6 billion. That category accounted for nearly 70 percent of Oracle's total revenue.

Cloud License and On-Premise License revenue accounted for 13 percent of total revenue by generating $1.2 billion. That was a 40 percent increase from the first quarter of 2019, but down 9 percent year over year.