Oracle’s cloud revenue could double in two years to a $12 billion run-rate.
As Oracle’s (ticker: ORCL) cloud business continues to ramp, we believe enterprise value (EV)/free cash flow (FCF) could expand to 17 times, similar to how Microsoft’s (MSFT) continued cloud execution has led to multiple expansion. Though much is contingent on Oracle’s execution, our recent conversations with partners increase our confidence in Oracle’s opportunities.
We expect Oracle to build off recent momentum and report upside in cloud revenue and reiterate full-year guidance. We had a chance to speak with implementation partners in the quarter, who reiterated Oracle’s cloud business is improving. While exchange rates may not affect fiscal-first-quarter (ended August) results, a favorable currency tailwind sets up well for the second half. Though much is contingent on Oracle’s cloud execution, our recent conversations with partners increase our confidence in Oracle’s opportunities and we are buyers.
Checks were better on cloud adoption. We talked to a number of implementation partners who suggested that Oracle’s cloud business continues to improve. Oracle has guided to 48% to 52% cloud revenue growth year-over-year, and we expect cloud revenue could be at the high end of this guidance. We expect license revenue to decline about 10% year-over-year. Partners also suggested that customers are becoming more receptive to cloud due to the long-term savings in total cost of ownership (TCO), through reductions in hardware, hosting costs, information-technology (IT) staff, upgrade work, etc.
While adoption of platform-as-a-service (PaaS) and infrastructure-as-a-service (IaaS) will likely be gradual, partners were adamant that if a customer were to migrate their on-premise database to the cloud, it would be on Oracle Cloud, as migrating a database to another cloud platform would be a much larger IT decision. As we have seen with other cloud migrations, this could lead to 2.0 times to 3.0 times higher revenue for Oracle.