Oracle has long had a complicated relationship with the cloud, but complexity doesn’t always sell.
Such was evident in the software giant’s fiscal third-quarter results reported late Monday. This was the third consecutive quarter in which Oracle’s total revenue growth exceeded 6% on a year-over-year basis. The company hasn’t posted such rapid growth on a consistent basis in seven years.
Yet, Oracle’s total cloud revenue came in a bit under Wall Street’s forecasts, while its outlook for the fourth quarter—its strongest period seasonally—also fell short of projections. Oracle’s share price slid more than 9% Tuesday morning, setting up the stock’s worst single-day performance in nearly five years.
Oracle, it should be noted, has made significant progress in transitioning its huge traditional software business to the cloud. The company’s various cloud offerings together have comprised 15% of total revenue for the trailing 12-month period ended Feb. 28, compared to just 7% two years prior.
But a recent change made by the company to attract more of its traditional customers to the cloud has had the ironic effect of masking some of that benefit. The change allows Oracle customers to bring their existing software licenses to the company’s cloud services rather than having to renegotiate new contracts. That has the effect of flattering licensing revenue—the key metric for Oracle’s traditional business—at the expense of the cloud revenue that investors these days are most focused on.
Easing the transition to the cloud for longtime customers is the right move for Oracle. Unfortunately, the changes will likely weigh on the company’s stock price for a while until the benefits to the company are more evident. For investors in the cloud, visibility is key.
Write to Dan Gallagher at dan.gallagher@wsj.com