What the Oracle Bulls Want to See Now

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.

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