Oracle is changing how it reports cloud revenues, what's it hiding?

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© Oracle

Analysts weren't impressed by Big Red's financial reporting change

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Oracle is changing the way it reports its all-important cloud figures every quarter. Where the database vendor used to report two cloud revenue segments: Software-as-a-Service (SaaS) as one and then a combined figure for Platform-as-a-Service (PaaS) and Infrastructure-as-a-Service (IaaS) as another, smaller, figure, now it is reporting just one figure.

Speaking on a Q4 2018 earnings call on Tuesday (quotes courtesy of Seeking Alpha's transcript, which is available here), co-CEO Safra Katz explained the logic behind Oracle's new cloud reporting model: "We’ve combined cloud SaaS plus cloud PaaS and IaaS plus software licence updates and product support into cloud services and licence support."

In short: Oracle no longer reports specific revenue for cloud PaaS, IaaS and SaaS, instead bundling them all into one reporting line which it calls 'cloud services and licence support'. This line pulled in 60% of total revenue for the quarter at $6.8 billion, up 8% year-on-year, for what it's worth.

Investors weren't impressed by the change however, with Oracle stock falling 7% the day after the fourth-quarter report, despite widely beating analyst estimates.

Oracle traditionally sells database software to be deployed on-premise, but has recently looked at cloud as a huge growth opportunity, so these figures are often put front and centre when reporting to the market.

Katz justified the change as a result of Oracle's recent introduction of the option for on-premise customers to use a bring your own licence (BYOL) model when shifting to Oracle's cloud.

"BYOL allows customers to move their existing on-premise licenses to the Oracle Cloud so long as they continue to pay support for those licences," she explained. "BYOL also makes it cost effective for customers to buy new licences, even if those licences are only going to be used in the cloud. So some of our customers are buying new licences and immediately deploying them in the cloud."

"As a result, our new licence revenue is now a combination of new cloud licences and new on-premise licences. Our support revenue is now a combination of cloud licence support revenue and on-premise licence support revenue."

Clear? Not really. What Katz is saying is that because customers are now adopting a hybrid approach, these revenues can't be broken out neatly as cloud or on-premise, so they are just going to call them all cloud.

"So to say it another way, customers are entering into large database contracts where some of those database licences are to be deployed on-premise, while other database licences are used in the cloud. Previously, all of those licensed and its related support revenue would have been counted entirely as on-premise, which clearly it isn’t," as Katz puts it.

Oracle wouldn't make anyone available to Computerworld UK in order to clarify these points.

Read next: Oracle was transitioning to the cloud "before the word even existed" says CEO Safra Catz

How this neatly allows the company to not break out its three cloud services areas was also less than clear.

Katz said: "To reflect these changes in our business, we have now labeled new software licenses as cloud licence and on-premise licence, and we’ve combined cloud SaaS plus cloud PaaS and IaaS plus software licence updates and product support into cloud services and licence support."

Analyst reaction

Some analysts have assumed that this means Oracle is purposefully obfuscating its cloud performance for the market, hiding evidence that it is falling further behind its big rivals at Microsoft, Amazon Web Services (AWS) and Google.

Responding to an analyst question along this line on the earnings call, Katz bit back in typical Oracle style: "So first of all, there is no hiding. I told you the cloud number: $1.7 billion. You can do the math."

However, as Timothy Green at The Motley Fool wrote: "There's no math to do, because that's the only cloud number given. There's no way to back out how the IaaS and PaaS portion of the cloud business is doing based on Oracle's numbers."

As reported by CNBC, Stifel analysts led by Brad Reback said in a note that "while Oracle's stable maintenance base is a cash cow, we believe the company is rapidly losing share in the most interesting areas (PaaS/IaaS) of infrastructure software."

Some analysts dropped their price target on the database giant as a result, according to CNBC.

Rivals

When it comes to its rival cloud vendors, there is still little consistency when it comes to reporting cloud revenues.

Microsoft, for example, reports earnings from its Azure department, which is primarily IaaS, separate from what it calls 'intelligent cloud', which includes SaaS products like the online version of Office and the Dynamics CRM product.

AWS still reports its earnings as part of its parent company Amazon, meaning you get a single figure for all of their revenues. It's a similar case with Alphabet subsidiary Google Cloud Platform (GCP).

Read next: Is Microsoft Azure really making up ground on AWS?

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