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Enterprise software developers Workday ( WDAY ) and especially profitable Salesforce.com ( CRM ) have gotten this far without any love from software king Oracle ( ORCL ), so a little verbal swagger from Oracle’s executives this week isn’t going to stop them. But Oracle’s 40% growth in cloud software revenue to $735 million in its third quarter, with a promise of more in Q4 , can’t bode well for the smaller rivals. Accelerating cloud sales, mostly for software as a service (SaaS) and platform as a service (PaaS), were Oracle co-CEOs Safra Catz and Mark Hurd’s favorite topics in a post-earnings conference call with analysts Tuesday. Oracle’s cloud growth, while approaching Workday’s recent 43% sales growth rate, has already puffed Oracle’s cloud to more than double Workday’s total revenue of $323 million in Workday’s last quarter. More deceleration seems inevitable from Workday’s triple-digit growth as recently as 2013. As for Salesforce.com, its year over year sales growth has slowed to the 23%-29% range for six straight quarters, following 13 out of the prior 14 quarters of 31% to 38% growth. Analysts polled by Thomson Reuters put it on a 25% sales growth trajectory to $1.89 billion in the current quarter ending in April vs. 23% revenue growth in the year-ago quarter. Still, “competition from leading SaaS vendors such as Salesforce.com, Workday and others creates the risk that new customers will be tougher (for Oracle) to find and existing on-premise customers could move to different vendors when they shift to the cloud,” warned RBC Capital Markets analyst Matthew Hedberg in a research note issued Wednesday. “This was not a quarter to change the competitive concerns,” he summarized. Not to worry, suggests Oracle Executive Chairman Larry Ellison. In the Q3 earnings conference with analysts Tuesday, Ellison said: “Oracle is now selling more new SaaS and PaaS annually recurring cloud revenue than any other company in the world including Salesforce.com. We are growing much faster than Salesforce.com, more than twice as fast, because we sell into a lot more SaaS and PaaS markets than they do. We compete directly with Salesforce.com in every segment of the SaaS customer experience (CE) market including sales, service and marketing.” He went on to say: “But Oracle also competes in huge SaaS markets where Salesforce.com does not compete at all, such as ERP (enterprise resource planning) and HCM (human capital management). It took many years for Oracle to develop the most complete ERP suite in the cloud including Fusion Financials, procurement, supply chain, logistics, manufacturing and much, much more. That long effort is now paying off.” In the conference call, Bank of America Merrill Lynch analyst Kash Rangan, discussing the huge database software bulk of Oracle’s business, addressed Ellison by noting that Amazon ( AMZN ) Web Services “wants to go after your business.” “ Microsoft ( MSFT ) just announced a SQL server running on Linux,” Rangan continued, “and everybody seems to be . . . swapping out your Oracle license for their license. Why are they doing this, Larry? Is it just because the industry views Oracle as this big giant that is less flexible with pricing? Is that right, that the industry feels like they need to take you guys on? How should we be thinking of Oracle’s presence in the database market a few years from now, given these threats?” Ellison replied: “Well, our PaaS business grew at 150% this past quarter. I mean, it’s interesting that Microsoft is now offering SQL Server on Linux. But people want Oracle in the cloud. People have a huge investment in Oracle products. I mean, people are coming after us because we are by far the market leader in database. So, of course, Amazon, (if) they’re going to be in the database business too, is coming after us, and of course (if) Microsoft wants to be bigger in the database business, they have to come after us. We’re the biggest player. “We see our customers — literally millions of applications and millions of users of those applications built on top of the Oracle database — wanting to move those applications into the cloud and we do that very well. Our PaaS service is even easier to use and better than Oracle is on-premises.” Or, as Evercore ISI analyst Kirk Materne put it in his Wednesday research note: “With 310,000 on-premises database customers, the company sees an enormous potential TAM (total addressable market), as database customers continue to shift to the cloud.” Workday stock at midday was trading up about 3% near 72 in afternoon trading in the stock market today , 23% off its 52-week high set May 26 at 93.62 and about halfway back from its dive in January and early February to 49.5% below that high mark. Salesforce stock was flat near 73, just 12% off an all-time high 82.90 set Nov. 19. Oracle was up about 1.7% in afternoon trading Friday near 41, just 9% off its 52-week high of 45.24 touched June 17. Oracle stock carries a relatively weak IBD Composite Rating at 56, partly because of its 6% earnings shrinkage and overall 3% revenue slip to $9.01 billion in Q3 — as that fast growth in the cloud pulls sales and profitability away from its own legacy on-premises lines. That cloud revenue only amounted to 8% of Oracle’s total Q3 sales, up from 6% a year earlier. Workday carries a 50 Composite Rating and Salesforce.com stock an 83. Scalper1 News
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