What happened
Shares of software giant Oracle (ORCL -0.97%) rose on Thursday following an impressive fiscal fourth-quarter report. The company beat analyst estimates across the board, with strong cloud revenue growth more than offsetting weakness in software licenses and hardware. The stock was up as much as 11.9% Thursday morning, settling into an 8.7% gain by 12:45 p.m. EDT.
So what
Oracle reported fourth-quarter revenue of $10.9 billion, up 3% year over year and $450 million higher than the average analyst estimate. Total cloud revenue jumped 58% to $1.36 billion, with software-as-a-service revenue growing 67% to $964 million and platform-as-a-service and infrastructure-as-a-service revenue collectively growing 40% to $397 million.
Image source: Oracle.
Non-GAAP EPS came in at $0.89, up 10% year over year and $0.11 better than analysts were expecting. GAAP EPS was up 15% to $0.76, with a lower tax compared to the prior-year period driving much of the increase. Trailing-12-month free cash flow was $12.1 billion, down slightly year over year.
Oracle launched an assault on Amazon.com Web Services late last year, rolling out its Generation 2 cloud infrastructure offering. The goal was to ensure that existing on-premises Oracle database customers chose Oracle's cloud instead of a competing cloud. Oracle showed some progress on that front during the fourth quarter, touting AT&T's decision to migrate thousands of Oracle databases and associated applications to the Oracle cloud.
Oracle Chairman Larry Ellison sees more wins like this in the pipeline: "In the coming year, I expect more of our big customers to migrate their Oracle databases and database applications to the Oracle Cloud. These large-scale migrations will dramatically increase the size of both our PaaS and IaaS cloud businesses."
Now what
Oracle's cloud strategy seems mostly defensive, designed to prevent current Oracle customers from defecting. The company's database business is its main cash cow, and maintaining its database dominance is critical.
Oracle's business has held up over the past few years despite the ongoing shift to the cloud, a testament to the switching costs of its products. Shares of Oracle have reached a new all-time high following its report, with investors growing increasingly optimistic that the cloud strategy will produce earnings growth.
