Is Oracle’s Cloud Strategy (ORCL) Going In The Right Direction?

Oracle ORCL is working to strengthen its position in the lucrative cloud space.

The cloud space was booming even before the pandemic, as businesses moved their workloads to the cloud. Migrating to the cloud provides businesses with increased scalability, faster deployment, cost efficiency, increased security, and easy disaster recovery management. The pandemic has only accelerated this change.

Working from home, the hybrid work model, and lockdown restrictions have driven demand for cloud-based video conferencing applications, gaming, e-learning, and e-commerce services, making it a new way of life. This further stimulates the cloud market.

According to Fortune Business Insights, the global cloud computing market is expected to experience a CAGR of 17.9% between 2021 and 2028 and reach $ 791.48 billion by 2028. This opportunity bodes well for companies like Oracle that provide various solutions and services cloud.

Oracle Corporation Price and Consensus

Oracle Corporation Price Consensus Chart | Oracle Corporation Quote

A boost in cloud offerings to drive the top line

Oracle revenue is accelerating across the cloud business, driven by strong adoption of Oracle Cloud Infrastructure (OCI) services and stand-alone database offerings. Another catalyst is the healthy adoption of cloud-based applications, including NetSuite Enterprise Resource Planning (ERP), Fusion ERP, and Fusion Human Capital Management (HCM).

The company’s Software as a Service (SaaS), Infrastructure as a Service (IaaS) and Platform as a Service (PaaS) products are expected to experience strong growth over the next several years as that businesses quickly migrate to the cloud environment. .

For the second quarter of fiscal 2022, management noted that the company’s IaaS and SaaS activities grew 22% to $ 2.7 billion, respectively. Management said that the company’s total cloud business revenue on an annualized basis was $ 10.7 billion, while the growth rate of cloud reservations was faster than the growth rate of cloud revenue.

In the last reported quarter, Oracle cloud services and license support revenue (73% of total revenue) grew 6% year-on-year (up 6% at constant currency) to reach $ 7.554 billion. The advantage can be attributed to the continued strength of the Fusion, Autonomous Database and OCI services.

Fusion ERP, Fusion HCM and NetSuite ERP revenues increased by 35%, 25% and 28% respectively in the second fiscal quarter.

Greater availability of Oracle cloud regions globally is expected to strengthen its competitive position in cloud computing.

Recently, Oracle unveiled a cloud region each in Italy and the Nordic countries as part of its strategy to expand its global cloud region footprint to 44 by 2022. With the opening of the Oracle Cloud Milan region, Oracle now has 36 cloud regions in the world. Before that, the company opened the Stockholm cloud region in the Nordic countries.

Recently, Oracle announced the takeover Cerner Corporation CERN in an all-cash transaction for $ 28.3 billion or $ 95 per share. Cerner specializes in providing digital information systems used in hospitals to enable healthcare professionals to achieve better patient health outcomes. The acquisition will help Oracle strengthen its position in healthcare technology by combining healthcare data with its cloud services, CNBC rated.

Headwinds persist

Increased costs of the cloud platform in a context of intense competition in the vertical cloud from dominant players such as AmazonAMZN Amazon Web Services and MicrosoftThe MSFT Azure platform remains a major concern for Oracle.

According to a Statista report, Amazon accounted for 32% of the global cloud infrastructure services market, followed by Microsoft (21%) and Google Cloud (8%) in the third quarter of 2021.

In the last reported quarter, Amazon’s AWS revenue (15% of the company’s total sales) grew 39% year-over-year to $ 16.1 billion. Expanding the AWS service portfolio helps Amazon maintain its dominance in the cloud space by gaining more customers.

Microsoft’s performance benefits from the strength of the Azure cloud platform as part of the accelerated digital transformation underway globally. Microsoft announced a 50% year-over-year increase (up 48% at constant exchange rates) in revenue from Azure and other cloud services in the first quarter of fiscal 2022.

In addition, high debt levels are a concern for Oracle. As of November 30, 2021, Oracle had $ 22.84 billion in cash, cash equivalents and marketable securities, while notes payable and other long-term borrowings stood at $ 73.43 billion. dollars.

Last week, Bloomberg reported that if Oracle accumulates huge debt for the Cerner acquisition, it runs the risk of having its investment grade ratings downgraded by the three top US ratings – S&P Global Ratings, Fitch Ratings and Moody’s Investors Service.

While the company’s cloud business is not relatively large at this time, its strategy has the potential to pay off in the long term.

Currently, Oracle carries a Zacks Rank # 3 (Hold). You can see tThe full list of Zacks # 1 Rank (Strong Buy) stocks today here.

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