The Six Five team discusses Oracle Q1 Earnings.
If you are interested in watching the full episode you can check it out here.
Disclaimer: The Six Five Webcast is for information and entertainment purposes only. Over the course of this webcast, we may talk about companies that are publicly traded and we may even reference that fact and their equity share price, but please do not take anything that we say as a recommendation about what you should do with your investment dollars. We are not investment advisors and we ask that you do not treat us as such.
Transcript:
Daniel Newman: First of all, have you seen the run? Okay, we got to do these victory laps from time to time. I think it was one of the first few times I ever went on CNBC, I had a city guy and me and it was like a bull or bear case and basically he was putting the price target at like 60 bucks and just beating up Oracle. No innovation, no disruption, bad business model, customers hate them. And I basically came in there and said, “I think you’re totally missing it.” This was right as Gen 2 Cloud was starting to take shape. You were seeing this run since the acquisitions of NetSuite fusion and this mountain of data the company has at its disposal. And I mean, just what a good quarter. I mean the growth fiscal revenue of 18%, 22 in constant currency. Remember that’s faster growth than Salesforce.
And I’m not saying that to knock Salesforce. I’m saying Salesforce has been a bellwether of software and growth and Oracle has found it’s a bit of its stride now. And Pat, some of the numbers I think that were really interesting and you and I both shared that cool app economy that shows how the company makes money, but outside of that there was some data points that they talked about in their growth. Look, infrastructure growth of 63% for the full year. So OCIs infrastructure right now is growing at about three times the clip of the other cloud providers. Now, they’re not breaking out infrastructure anymore to the degree which we would need to do a full on comparison, but Pat-
Pat Moorhead: I don’t know. No. Are you sure?
Daniel Newman: I don’t think they break out just IAS any more than they need to.
Pat Moorhead: They literally are breaking out IAS now, is Oracleâ¦
Daniel Newman: No, Oracle-
Pat Moorhead: Oh right, right. Sorry, sorry.
Daniel Newman: I can’t compare the Oracle to, what I guess I’m saying is my assertion is at 63 for the year, 77 for Q4. They’re taking share. At this point Oracle is actually has to be taking market share now, albeit it’s a pretty small number at about $1.5 billion. But that is interesting because when you’re growing it three times the market rate, it means some customers, and I have to imagine it’s a combination of the more useful utilities, Gen 2 and also the aggressive pricing. But Oracle still has great margin. So I want to make that pretty clear. The other thing that was really Pat, that was pretty impressive was the 45% growth in their SaaS and cloud application business.
Pat Moorhead: Where did that come from?
Daniel Newman: It does not calculate. Again, are they taking business off of Dynamics and off of Salesforce and off of like SAP? They’re never ones to not tell you on their earnings calls. So they gave some good examples of customer wins that they they’ve taken. But Pat, these are really, really impressive growth numbers. Now that’s the cloud application business. Now I do want to be clear, they split out applications Fusion and NetSuite. So NetSuite’s growing in the mid-twenties, fusion’s in the mid-twenties, then the rest of their cloud application, which is some of their CX and apps and stuff that’s growing at 45%. But still a really impressive growth rate across the board. Company also had a pretty big announcement around some of what it’s doing around gen AI. And so it’s basically going after having low cost. They partnered with Nvidia but low cost GPU clusters.
So they’re going to take the pricing model, the low price model to the market. But this is something I’ve said for a while and it was verified for me. When I went to the Google executive cloud forum and I had customers and I was talking to some of the leaders, the ones that are actually doing the Google’s TPU and they were doing the Nvidia partnerships and I asked the question, I said, “As gen AI is scaling and you’re doing more AI with more customers”, I said, “Do the customers care which silicon they’re running anymore? If it’s all done in Vertex, if it’s all done using your front end?” And basically what they said is that there is a significant shift, they’re very bullish about Nvidia and they understand the value of that relationship. So they were not by any means poo-pooing that, but they basically did say that as more and more customers and startups, unless they’re doing these really large complex training and that customers are more interested in just the efficiency and cost of being able to spin up AI apps like in a gen AI app builder.
So it’s what’s going on there. So you do have to wonder, is there an interesting market opportunity for a pivot for Oracle for those that do have these big training workloads that if they can be the price performance leader in terms of offering the same hardware, will they have a chance to take some additional market? And clearly they’re doing so with traditional cloud workloads Pat, so it was an overall strong performance and of course you have a company that pays a dividend that consistently does buybacks and returns to shareholders. And so no matter what my T-shirt, Pat, of my rush class in college said, “Loved or hated but never ignored.” And I think that that’s really opera bow for Oracle, but the company just keeps executing and you got to give them credit for that.
Pat Moorhead: So I’m going to do a little bit of a victory lap as well. Gen one, I was brutal and I wrote brutal stuff about Gen one OCI because it wasn’t any good. It was overpriced, low performance, the technology was dated. To the company’s credit, Gen two is literally just a miracle. And if you look at when the infrastructure was created, it’s actually the youngest infrastructure architecture out there right now. So when Larry got on the call and he’s talking about generative AI and he’s saying, “Hey, we have the highest performance, lowest cost and the biggest amount of scalability”, most people might do an eye roll and say, “Okay, that’s Larry talking about Larry CTO and founder Larry Ellison and chairman.” But you have to pay attention to what he is saying given the success that they’re having with generative AI. And listen, I’m not confused about scale.
I know that AWS, Azure and GCP have more scale, but AWS started 19 years ago and Gen two I think is two to three years years old. And the business model that they have too is very interesting. Some cloud providers charge more for the basics than they do for the add-ons. And that said, that’s a theory that says, “Hey, if I can entice people with the add-ons and they pull through high-priced basics”, that makes sense. Oracle is pricing their basics low and their add-ons high, which is another way to do pricing. And their business success shows that it’s working again, whether it’s 20 times smaller, 10, I don’t care, this is a long game. You have to have scale and show up and you have to build it and then much bigger things can happen. So kudos to Oracle for the beat Beat Rays and the increased details, that 45% growth on SaaS apps, I have never seen that before.
What have they shown from Fusion and NetSuite has always been ERP. Now they showed ERP for both, but that’s basically a 20%, 20 plus percent. I’ve never seen this 45% and I got to dig in and see where this comes from.
Author Information
Daniel is the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise.
From the leading edge of AI to global technology policy, Daniel makes the connections between business, people and tech that are required for companies to benefit most from their technology investments. Daniel is a top 5 globally ranked industry analyst and his ideas are regularly cited or shared in television appearances by CNBC, Bloomberg, Wall Street Journal and hundreds of other sites around the world.
A 7x Best-Selling Author including his most recent book “Human/Machine.” Daniel is also a Forbes and MarketWatch (Dow Jones) contributor.
An MBA and Former Graduate Adjunct Faculty, Daniel is an Austin Texas transplant after 40 years in Chicago. His speaking takes him around the world each year as he shares his vision of the role technology will play in our future.
