Oracle is first enterprise tech group to hit $200bn valuation

Oracle’s stock market value jumped above $200bn on Wednesday for the first time since the tech bubble of the late 1990s, as Wall Street bet that the business software maker had finally turned the corner in its transition to cloud computing.

The near-11 per cent after-market bounce made Oracle the only so-called enterprise technology company — one selling almost exclusively to big businesses and governments — to have broken through the $200bn barrier. By comparison, IBM’s market value has fallen by 16 per cent in the last four months, to $145bn, as investors have worried about its own attempt to remake its business for the era of cloud computing.

Oracle’s stock price bounce underlined a swing in sentiment on Wall Street this year that had already seen the company gain more than 20 per cent, more than double the broader market.

Co-founder and chairman Larry Ellison said the company’s latest quarterly numbers, released after the market closed on Wednesday, showed Oracle was “well on our way to passing Salesforce.com” as the largest seller of cloud software. Led by former Oracle salesman Marc Benioff, Salesforce is still larger than Oracle based on its cloud revenues, but its revenue growth rate of 24 per cent in the latest quarter lagged behind the 58 per cent growth that Oracle recorded in its own cloud business.

Mr Ellison predicted that the platform and infrastructure parts of Oracle’s cloud business would hit “hyper-growth” in the coming year, putting them on track to match the growth from cloud applications. The company’s shares were up by $4.87 in after-market trading, to $51.20.

Oracle executives had taken to promising Wall Street in recent months that their company was finally ready to show results from its move from selling on-premise software to selling subscriptions to its cloud services. Wednesday’s earnings for the all-important fourth quarter of the company’s fiscal year went a long way to reinforcing confidence in their claims.

The company reported a 3 per cent increase in total revenues, to $10.9bn, ahead of the average analyst forecast of $10.45bn. Pro forma earnings per share rose by 10 per cent to 89 cents, well ahead of the 78 cents most analysts had been expecting.

The outperformance came on the back of a strong showing from Oracle’s software-as-a-service, or cloud applications, business. On a pro-forma basis, revenues from this business jumped 75 per cent, to more than $1bn. The gross profit margin from this business climbed from 54 per cent to 65 per cent and was projected to be “very close” to 80 per cent by the end of the current fiscal year, according to Safra Catz, co-chief executive.

The platform-as-a-service business also did well as the company attracted new customers such as AT&T to its cloud-based database service. However, the gross profit margin from the this part of the business — which was combined with the cloud infrastructure business after a reporting adjustment — slipped as the company invested in new data centres to support future growth.

Oracle also succeeded in slowing the erosion of its traditional on-premise licensing business in the latest quarter, to the end of May. Sales of new software licences declined by 5 per cent on the year, to $2.6bn, but that was much better than the 15 per cent drop Wall Street had been expecting.