In a bid to expand its cloud platform, Oracle Corporation (ORCL - Free Report) announced the accessibility of its next-generation Oracle Cloud Platform services. The move is aimed at providing required programmability, performance and flexibility for rapid service deployment in the cloud economy.
Oracle’s Cloud Platform, which includes Oracle Mobile Cloud Enterprise, Oracle Data Integration Platform Cloud, and Oracle API Platform Cloud, will enable organizations to better manage business and help reduce risk.Users can benefit from the enhanced performance, favorable cost, reliable security and innovation offered by these solutions.We believe, the company’s cloud platform will be one of its key revenue generating businesses in the coming days.
The company’s Cloud Platform helps enterprises extend SaaS applications and migrate from existing on-premises applications to the cloud. Its cloud solution provides a broad portfolio of public cloud services including software-as-a-service (SaaS), Platform-as-a-Service (PaaS), DaaS and Infrastructure-as-a-Service (IaaS).
The latest addition to its cloud platforms reflects Oracle’s focus on expanding cloud computing product portfolio inorganically. The strategy will enable the company to scale up its cloud operations much faster. Through product expansion, Oracle hopes to challenge the dominant position of Amazon (AMZN - Free Report) and Microsoft (MSFT - Free Report) in both the PaaS and IaaS.
The overall growth expectation for the public cloud computing services market is very bullish. According to Gartner, the worldwide public cloud services market was projected to grow 18% through 2016 to $246.8 billion in 2017. This figure will increase to $383.3 billion by 2020.
IaaS is projected to be the highest growth service driven by improvement in PaaS along with the massive adoption of artificial intelligence (AI), analytics and the Internet of Things (IoT). IaaS is projected to grow from $25.29 billion in 2016 to $71.55 billion in 2020.
Exponential growth in the amount of data, complexity of data formats and the need to scale resources at regular intervals compelled several companies to turn to cloud computing vendors. Consequently, considering the growing need for cloud-based applications and software, we expect Oracle’s investments in this space to boost long-term growth.
Oracle’s Strong Hold in Cloud
Oracle is gaining traction in its cloud business as evident from its third-quarter fiscal 2018 performance, which benefited from the ongoing cloud-based momentum. Total cloud revenues (16% of total revenues compared with 13% in the year-ago quarter) advanced 32% to $1.57 billion.
Moreover, total cloud and on-premise software revenues increased 8% to $7.98 billion. We believe that the company’s growing cloud market share will continue to drive top-line growth in the foreseeable future.
We note that partnerships with the likes of Accenture are helping the company rapidly expand its cloud-base clientele. Further, anticipated strong demand for the next-generation autonomous database supported by machine learning will bolster competitive position against Amazon’s AWS.
However, management provided soft outlook for the cloud business, which will remain an overhang on the shares in the near term. Further, higher investments on IaaS platform will affect gross margin expansion in the near term.
Zacks Rank & Key Picks
Oracle carries a Zacks Rank #4 (Sell).
A better-ranked stock in the broader technology sector is Micron Technology Inc. (MU - Free Report) , currently sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The projected earnings growth rate (3-5 years) for Micron is 10%.
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