Oracle Brags About Its Cloud Reliability, Performance Advantage Over AWS; Expects Cloud Revenue To Overtake On-Prem Next Year

Oracle's investment in the cloud seems to have paid off for the company, which said Wednesday that its cloud operations far outgrew the rest of its businesses in the company's third fiscal quarter and will generate huge growth opportunities for at least the next five years.

Chairman and CTO Larry Ellison, along with other Oracle executives, used the company's Q3 earnings call with financial analysts as an opportunity to brag about how the company has battled its cloud competitors, particular Amazon Web Services and Microsoft's Azure.

Oracle's cloud revenue was at the high-end of earlier guidance, said Oracle CEO Safra Catz. As a result, the company's cloud position is in full swing as it out-grows its competitors, Catz said.

[Related: Oracle Illuminates Plan To Compete In Public Cloud With New Data Centers, Bare Metal Servers]

"More importantly, our growth in cloud revenue is higher than for new software licenses," she said. "Next year, I expect our cloud revenue will be greater than our new license revenue."

Investors liked what they heard. In the first few hours of after-hours trading, Oracle shares were up by well over 5 percent from their Wednesday close.

Ellison said during the analyst call that while the Oracle Cloud is able to run the full Oracle Database, with full reliability, the same cannot be said about Amazon Web Services.

"Many Oracle workloads run 10 times faster in the Oracle Cloud than on AWS," Ellison said.

A four-hour service outage at AWS on Feb. 28 seriously disrupted websites, online applications and Internet services around the world. The company blamed the outage on a botched effort by an employee to debug a billing system who entered a command incorrectly.

Oracle has done well in growing its software-as-a-service and platform-as-a-service businesses for several years, but this year the vendor is also seeing strong growth in infrastructure as a service, Ellison said. "This is the first time we've ever had a technology lead in infrastructure-as-a-service," he said. "Before long, infrastructure-as-a-service will become Oracle's largest cloud business."

For its fiscal 2017 third quarter, ended February 28, Oracle reported total revenue of $9.21 billion, up about 2 percent compared to the $9.01 billion it reported for the third quarter of fiscal 2016.

Income on a GAAP basis for the quarter was $2.24 billion, or 53 cents per share, up about 5 percent from $2.14 billion, or 50 cents per share, for the same period of 2016. On a non-GAAP basis, income was $2.89 billion, or 69 cents per share, compared to last year's $2.73 billion, or 64 cents per share.

Oracle reported that cloud software-as-a-service and platform-as-a-service revenue reached $1.01 billion during the third quarter, up 73 percent over last year. Total cloud revenues, including infrastructure-as-a-service, reached $1.19 billion, up 62 percent over last year. Total cloud and on-premises software revenues reached $7.37 billion, up 4 percent.

Catz said the third quarter was the first to see the combined cloud and on-premise revenue grow year-over-year.

New software license revenue by itself, however, fell 16 percent year-over-year to $1.41 billion. That was nearly matched by the 14-percent fall in hardware product revenue to $520 million, which dragged hardware support services down by 4 percent to $508 million.

Oracle CEO Mark Hurd said the company now has a $5-billion annual cloud revenue run rate. "We are clearly the fastest-growing cloud company at scale," Hurd said.

During the third fiscal quarter, Oracle gained 1,125 new software-as-a-service customers, 210 of which also purchased platform-as-a-service from Oracle, Hurd said.

Oracle has already managed to migrate about 4,000 of its ERP (enterprise resource planning) customers to software-as-a-service, Hurd said. However, the vast majority of its ERP customers still use on-premise systems, giving the company a huge total addressable market opportunity.

Ellison said Oracle now has hundreds of thousands of database customers running tens of millions of Oracle applications, most of which will eventually move to the cloud, specifically to the Oracle cloud. "We have performance and cost advantages over Amazon," he said.

Oracle's second-generation infrastructure-as-a-service offering brings customers a large technology advantage compared to AWS and Azure, Ellison said. And that means only long-term opportunity for the company.

"How long does it take to migrate hundreds of thousands of customers and tens of millions of apps to the Oracle cloud. … The majority will move over the next five years. And that will give us an enormous growth for five years," he said.

Looking forward, Catz expects Oracle's fourth fiscal quarter 2017 software-as-a-service and platform-as-a-service revenue to grow in the range of 69 percent to 73 percent year-over-year, while infrastructure-as-a-service revenue is expected to grow in the range of 25 percent to 29 percent.

She also expects Oracle's combined software license and cloud business revenue to grow between 1 percent and 3 percent for the fourth quarter, with total revenue coming in between a decline of 1 percent to growth of 2 percent.