Oracle turns in a strong Q3 with time left over to debunk the so-called 'SaaSpocalypse'

No signs of the wretched ‘SaaSpocalypse’ as Oracle turned in a strong Q3. Revenue rose 18% year-on-year to $17.19 billion, with profit of $3.72 billion, up from $2.94 billion a year ago.

Total cloud revenue (IaaS plus SaaS) came in at $8.9 billion, up 44%, of which infrastructure revenue was up 84% to $4.9 billion, while SaaS revenue of $4.0 billion was up 13%. Within applications, Fusion Cloud ERP was up 17% to $1.1 billion, while NetSuite also generated $1.1 billion, up 14%.

On the post-results analyst call, Mike Sicilia, co-CEO, highlighted a number of key wins in the applications space in Q3:

Memorial Hermann Health System selected Fusion ERP, SCM and HCM. This was a win over Workday. University of New South Wales also selected Fusion ERP and HCM, also a win over Workday. Gregg Media selected Fusion EPM and ERP, a win again over Workday and also over SAP. Investec Bank selected Fusion EPM and ERP over SAP. HID Global Corporation also selected Fusion ERP and SCM over SAP.

Ethiopian shipping and logistics services enterprises selected Fusion ERP, SCM, and HCM, again, over SAP. A major Wall Street Bank elected to standardize on Fusion ERP for the entirety of their business and all of their business units replacing SAP full stop. Loudoun County Public Schools selected Fusion ERP, EPM, HCM and SCM. The J.M. Smucker Company selected Fusion ERP and EPM, Westfield Insurance [ spec ] Fusion ERP, EPM, HCM and procurement.

Supply and demand

Remaining Performance Obligations (RPO), which has made Wall Street so excited in recent months, ended Q3 at $553 billion, up 325% from a year ago and up $29 billion in Q2. That growth is related to large AI contracts, with demand still outstripping supply. Clay Magouyrk, co-CEO, said:

Multi-cloud database revenue grew 531% year-over-year. AI infrastructure revenue grew 243% year-over-year. Both also have demand that exceeds supply and a clear execution plan for Oracle that will rapidly turn that demand into profitable recurring revenue.

He explained:

AI infrastructure begins with data centers and power generation. Through our partners, we have secured more than 10 gigawatts of power and data center capacity coming online over the next 3 years. Those infrastructure investments also need funding and greater than 90% of that capacity is fully funded through our partners, with the remainder planned to finish this month. Once the data center is secured, several things must come together. The data center and on-site power generation has to be constructed. Compute, networking and storage has to be designed, manufactured, delivered and installed. All the capacity inside the data center also has to be funded.

We continue to innovate across each of these steps. We optimize our data center construction through standardized designs. Our supply chain has improved with more suppliers and deeper relationships. We have tripled our manufacturing sites and increased rack output by 4x all in the last year. We have scaled our installation processes to enable multiple phases of delivery in parallel. Time from rack delivery to revenue has reduced by 60% in the past several months.

Oracle is delivering more capacity to customers, he added:

In Q3, we delivered more than 400 megawatts to customers. Ninety percent of that committed capacity was delivered on or ahead of schedule as we've consistently done over several quarters. This is why customers continue to choose Oracle for their infrastructure needs.

Investing in the AI infrastructure is capital-intensive, but our operating model is optimized to ensure profitability. Flexible infrastructure design, high utilization and rapid handover combined with diversified customers create an incredible, Increased scale spreads our fixed costs over a larger base increasing profitability. It's unprecedented to scale a capital-intensive business so quickly while also increasing profitability.

SaaSpocalypse, no

For his part, Sicilia turned his attention to debunking the so-called ‘SaaSpocalypse’, the theory that companies coding quickly using AI will spell the death of SaaS and traditional software firms:

I don't agree with that at all. I do think that AI tools and their coding capabilities would be a threat if we weren't adopting them, but we are and very rapidly. Oracle is using the best AI coding tools and the best developers not only to accelerate our SaaS business but to deliver solutions that enable entire ecosystems across numerous industries.

The use of AI coding tools inside Oracle is enabling smaller engineering teams to deliver more complete solutions to our customers more quickly. We are building brand-new SaaS products using AI and also embedding AI agents right into our existing applications suites. By embracing AI with small engineering teams, we have just built three brand-new CX applications, lead generation and qualification, sales orchestration and automated selling and our new website generator.

And CTO Larry Ellison, in his only contribution to the post-results analyst conference call, added:

Thank God we have these coding tools now that allow us to build a comprehensive set of software, agent-based software to automate a complete ecosystem like health care or financial services. That's what we're doing at Oracle. That's why we think we're a disruptor. That's why we think the SaaS apocalypse applies to others but not to us.

My take

As someone who’s been writing about Oracle since 1990, it was somewhat disconcerting to sit through an analyst call in which Ellison was largely an observer rather than dominating the conversation. A new world indeed...

Aside from that personal observation, this was another strong quarter for Oracle and Wall Street clearly approved of what it was hearing as the uptick in the share price indicates.

Onwards!