The News: Oracle Corporation announced fiscal year (FY) 2024 second quarter (Q2) results. Total quarterly revenue was up 5% year-over-year (YoY), up 4% in constant currency, to $12.9 billion. Cloud services and license support revenue was up 12%, up 11% in constant currency, to $9.6 billion. Cloud license and on-premises license revenue was down 18%, down 19% in constant currency, to $1.2 billion. Read the full press release from Oracle on the company’s website.

Oracle FY 2024 Q2: Cloud Infrastructure and Generative AI Spur Growth

Analyst Take: Oracle delivered sound FY 2024 Q2 earnings underscored by Oracle’s total Remaining Performance Obligations (RPOs) rising to over $65 billion, surpassing annual revenue. Oracle CEO Safra Catz stressed that Oracle’s cloud businesses are now nearly at a $20 billion annual revenue run rate (ARR) and cloud services demand continues to grow at breakthrough rates.

Plus, Oracle is in the process of expanding 66 of its existing cloud datacenters, alongside building 100 new cloud datacenters to fulfill increasing ecosystem-wide demand. From our view, Oracle is strongly positioned to swiftly build its new datacenters and operate them inexpensively through automation with identical high-performance remote direct memory access (RDMA) networks and the same set of autonomous services.

Oracle Chairman and CTO, Larry Ellison, shared that in the next few months, the company is turning on 20 new Oracle cloud datacenters collocated with and connected to Microsoft Azure. Simultaneously Oracle is building dozens of new datacenters in countries all over the world as demand escalates substantially.

Notably, Oracle’s Q2 generally accepted accounting principles (GAAP) operating income was $3.6 billion. Non-GAAP operating income was $5.5 billion, up 9%, 7% in constant currency. GAAP operating margin was 28%, and non-GAAP operating margin was 43%. GAAP net income was $2.5 billion. Non-GAAP net income was $3.8 billion, up 14%, 11% in constant currency. Q2 GAAP earnings per share (EPS) were $0.89, and non-GAAP EPS were $1.34, up 11%, 9% in constant currency.

Short-term deferred revenue was $8.9 billion. Over the past 12 months, operating cash flow was $17.0 billion and free cash flow was $10.1 billion.

Key FY 2024 Q2 cloud-related results included:

• Q2 cloud revenue (IaaS plus SaaS) $4.8 billion, up 25%, 24% in constant currency
• Q2 cloud infrastructure (IaaS) revenue $1.6 billion, up 52%, 50% in constant currency
• Q2 cloud application (SaaS) revenue $3.2 billion, up 15%, 14% in constant currency
• Q2 fusion cloud ERP (SaaS) revenue $0.8 billion, up 21%, 19% in constant currency
• Q2 NetSuite Cloud ERP (SaaS) revenue $0.8 billion, up 21%, 20% in constant currency

Oracle FY 2024 Q2 Results: Why Oracle’s Cloud Business Is Prosperous

We view the overall growth of the business at a moderate pace, but we like the growth in IaaS and SaaS for Fusion and NetSuite against the backdrop of slower growth from larger players in both of those spaces. For example, we see that the Fusion Data Intelligence Platform (FDIP), as the evolution of Oracle Fusion Analytics Warehouse, represents the forefront of application-centric data analytics solutions for the future. Its integration of AI-driven features signifies a strategic shift toward the development of intelligent applications.

Designed for the context of specific jobs and integrated in the process of daily workflows, FDIP-based applications will provide AI-powered recommendations and suggest prescribed actions so that organizations and key decision makers can intelligently and efficiently achieve optimal business outcomes. Moreover, the law of large numbers matters, but the 52% infrastructure growth is well above overall IaaS growth trends from the industry, which is noteworthy. The 20+% growth of Fusion and NetSuite is well above what the leading CRM/ERP SaaS companies have seen in the past few quarters.

We find that the AI story will benefit from more volume and repetition. For instance, Microsoft Azure partnering with Oracle Cloud Infrastructure (OCI) on cloud infrastructure for Bing enterprise search is a good example of OCI + AI success.

We are also confident that Oracle will be layering more and more generative AI into its software, which will be high value to its users. Thankfully for the company, the stickiness of Oracle will also give the company time to get its AI tools developed because moving off the platform is not ideal for most of its users regardless of saturation level.

Oracle FY 2024 Q2 Results: Let Multi-Cloud Flourish

From our perspective, Oracle is advancing its organization-wide cloud momentum through continuous partnership building and portfolio-wide innovation. As noted, Oracle and Microsoft expanded their relationship in FY 2024 Q2 at CloudWorld 2023 to deliver Oracle Database services on OCI natively in Microsoft Azure. The joint offering focuses on providing customers with more flexibility in running their database workload in full accord with delivering an environment that streamlines cloud purchasing and management between Oracle Database and Azure services.

We believe the new initiative is poised to have an impact on the overall cloud ecosystem because it prioritizes streamlining multi-cloud capabilities for the company’s joint customers. This priority is relevant for easing the adoption and scaling of AI applications, including generative AI. Now Oracle and Microsoft customers can use Oracle Database@Azure to combine the data workload agility of Oracle Database on OCI with the cloud acumen of Azure, including fast-expanding AI services such as Azure OpenAI.

Moreover, Oracle unveiled global availability of Oracle Alloy at CloudWorld 2023 in September, letting partners build localized cloud services on OCI. Oracle Alloy partners use OCI services as material to build their own specialized suite of cloud services, incorporating their intellectual property (IP), unique value, and brand. As the Oracle Alloy partner is also an OCI user, the partner can benefit from OCI integration with its own applications. This setup greatly simplifies the creation of localized and specialized clouds offered by a partner for its customers to buy and use.

Additionally, we view the innovation train as accelerating faster for the MySQL HeatWave proposition and engineering team. At CloudWorld 2023, Oracle unveiled that:

• Lakehouse functionality is available on Amazon Web Services (AWS)
• A new vector store and support for large language models (LLMs) of choice enables users to interact with MySQL HeatWave in natural language
• Customers can use HeatWave AutoML to perform machine learning (ML) operations on data loaded directly from the Lakehouse
• JavaScript can be accelerated by HeatWave and with JSON acceleration in HeatWave, queries run up to 144x faster

For its competitors such as Redshift, Aurora, Databricks, and BigQuery, the heat is on as customers have numerous more reasons to make the switch to HeatWave.

Key Takeaways: Oracle FY 2024 Q2 Results Showcase Cloud and AI Prowess

Overall, we regard Oracle’s FY 2024 Q2 results as moving the needle in the cloud market because the results validate that the company is a vital player in powering innovation and accelerating adoption across the cloud and AI ecosystems, including specially making multi-cloud environments work for customers. In meeting the swiftly evolving demands of IaaS/SaaS customers and driving ecosystem-wide generative AI and AI application adoption, Oracle is demonstrating that it can built the cloud ecosystem that delivers the next generation of AI training development and innovation.

Daniel Newman and his co-host of The Six Five Webcast, Patrick Moorhead of Moor Insights and Strategy discussed Oracle’s earnings in their latest episode. Check it out here and be sure to subscribe to The Six Five Webcast so you never miss an episode.

Disclosure: The Futurum Group is a research and advisory firm that engages or has engaged in research, analysis, and advisory services with many technology companies, including those mentioned in this article. The author does not hold any equity positions with any company mentioned in this article.

Analysis and opinions expressed herein are specific to the analyst individually and data and other information that might have been provided for validation, not those of The Futurum Group as a whole.

Other insights from The Futurum Group:

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