Why Oracle Is Playing Both Defense And Offense With The Cloud

• Oracle Corporation ORCL has seen a 9.43 percent increase in its share price over the past month, with the shares touching a high of 38.87 on October 28.
• MKM Partners’ Kevin Buttigieg has maintained a Neutral rating on the company, with a price target of $42.
• At its recent analyst meeting, the company defended its SaaS business, reiterating that revenues were expected to sharply accelerate F2H16 onwards, while dismissing AWS as a potential competitive threat.

Analyst Kevin Buttigieg elaborated that Oracle’s analyst meeting “was largely a spirited defense of its SaaS business, including new statistics outlining its rapid growth and assertions that it is largely complementary to, rather than cannibalistic of, its on-premise license business.”

The company also offered more insight into its Cloud business and strategy, while emphasizing that SaaS was not cannibalizing its On-Premise business, revenues for which had been steadily growing, “as has the combination of SaaS ARR and on-prem horizontal business apps, with growth in the former outpacing declines in the latter.”

Related Link: These 'Bold' Cloud Predictions Could Boost Oracle Investors

Oracle also mentioned that very few of its maintenance customers were transitioning to SaaS, with only $50 million among a base of $19 billion converting to SaaS. However, Buttigieg expressed concern regarding how long maintenance rates could remain high.

The company also dismissed the competitive threat from AWS, saying that “the new technology simply isn't a replacement for hardened ORCL technology,” the MKM Partners report stated, although investors are likely to be concerned about Oracle losing new database workloads to AWS.

“In apps, ORCL is most focused on ERP & HCM, as it believes these markets are in their early stages relative to CRM. It is also where ORCL generates the bulk of its on-prem revs,” the report went on to say.

The company believes that it has an advantage over the competition in this arena, given that its competitors do not possess the ability to integrate with other apps easily due to the lack of a platform.