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

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

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 last week (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 US$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.

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