What the Oracle Bulls Want to See Now

By Paul Ausick Updated Apr 28, 9:52AM EDT · Published Jun 20, 11:05AM EDT

Follow 24/7 Wall St. on Google

This post may contain links from our sponsors and affiliates, and Flywheel Publishing may receive compensation for actions taken through them.

When is bad news actually good news? If you’re Oracle Corp. (NASDAQ: ORCL) CEO Larry Ellison, the answer is Thursday, after the markets closed and Oracle reported earnings that missed both earnings per share and revenues estimates.

New software licenses contributed $3.8 billion to fourth-quarter revenues, flat with a year ago. Software and Cloud revenues totaled $8.9 billion for the quarter, up 4% over the $8.5 billion in the same quarter of last fiscal year. As a percentage of total revenues, new software licenses dropped from 35% to 33% and cloud-related services rose from 43% to 46% of revenues. That is the silver lining Ellison focused on in the conference call.

Talking about the difference between selling a license and selling a subscription to cloud services, Ellison said:

We actually make more money when we sell a cloud subscription. … We get about the same amount of money from a subscription after three years as we get from a license. But these subscriptions last three, four or five, 10, 15, 20 years, so we make a lot more money on a subscription, but we recognize the money over time. … But during the transition selling those cloud subscriptions what would have been a license is now recognized over time. So we are going to recognize the revenue more slowly. And that will somewhat affect the top line during the transition. That’s okay, because in the long-term we make much, much more money.

That is absolutely true of course, provided that new subscription sales replace lost license sales as nearly as possible. So far Oracle has been able to manage that, but the catch may be that the company has pruned the low-hanging fruit and getting new sales will get more difficult and likely more costly.

But that is what the Oracle bulls will want to see — solid and rising growth in the company’s cloud-related services as Oracle’s dependence on licensing diminishes.

Oracle did announce Friday that it has acquired LiveLOOK, a provider of real-time visual collaboration technology for screen share and co-browsing. Oracle already claims more than 100 customers for LiveLOOK’s technology, which will now be embedded in Oracle’s Service Cloud offering.

Oracle shares were down 6% in late morning trading Friday, at $39.95 in a 52-week range of $29.86 to $43.19. That is about where the shares were trading in the after-hours session Thursday after the company announced results.

ALSO READ: Companies With the Best (and Worst) Reputations

About the Author Paul Ausick →

Paul Ausick has been writing for a673b.bigscoots-temp.com for more than a decade. He has written extensively on investing in the energy, defense, and technology sectors. In a previous life, he wrote technical documentation and managed a marketing communications group in Silicon Valley.

He has a bachelor's degree in English from the University of Chicago and now lives in Montana, where he fishes for trout in the summer and stays inside during the winter.