 From the SiliconANGLE Media office in Boston, Massachusetts. It's theCUBE. Now, here's your host, Dave Vellante. Hi everybody, welcome to this special edition of CUBE Insights powered by ETR. This is Dave Vellante and we've been running these breaking analysis segments and it's timely because Oracle last night announced earnings ahead of expectations. They were expected to announce today, Friday, but they announced early, ostensibly because co-CEO Mark Hurd is taking a leave of absence for medical reasons, so of course we wish him the best, hope everything's okay with him, but it looks like they pre-announced or announced ahead of schedule in order to get that out of the way and prepare for Oracle Open World. Larry Ellison and Safra Katz are gonna be filling in during Mark Hurd's absence, but so this is a breaking analysis on Oracle's earnings. We call this, expect more of the same. So Alex, if you kind of bring up the financial overview of Oracle, we'll dig into it a little bit. So Oracle's a company with around $40 billion in annual revenue. It's growing at single digit growth, maybe 1% is the top line last quarter. They've got a large market cap, $187 billion, so they consistently trade in the 4.5 to 5x revenue range and they've got an outstanding operating margin of 42%. It's very high, they're a software company and very, very profitable software company. That is a non-gap margin. Their free cash flow is also very strong. They throw off about 12 to $14 billion annually on a trailing 12 month basis in free cash flow. And the other thing about Oracle, I've made this point many, many times in theCUBE, is Oracle spends money on R&D. They spend about 15% of revenue on R&D. They've got a lot of cash, they've got over $35, $36 billion in cash and short-term investments, but they of course also have some long-term debt over 50, well over $50 billion in long-term debt. Now, that doesn't bother me, some people point to that as a concern, but if you look at Oracle's EBIT, it's many, many times greater than its interest payments. I mean, I think 3x is kind of the benchmark there and Oracle was well, well over that 6, 7x EBIT relative to its interest payment. So that's really not a concern of mine. But the other thing is interest on the debt is oftentimes it's tax deductible. And so it can be a good source of capital, it's cheap debt and of course Oracle's got to compete with some of the cloud suppliers building out more data centers. They just had an announcement in that regard. And so it needs capital even though it can't spend nearly as much as Amazon, Google and Microsoft, not even close, it would take Oracle years and years and years to spend what Google does in four months. But nonetheless, they need cash to compete in their business. Oracle's got a shifting business mix from kind of lower margin hardware, the remnants of the Sun business and really shifting to higher margin cloud services and support Oracle has really gone all in on cloud. Again, even though it's really, it's cloud is not competitive with the hyperscalers, but it's sort of the Oracle cloud, the RedStack cloud. But in that, that business is growing, it's growing at around 4% from a constant currency standpoint. This past quarter, it's shifting, Oracle's shifting toward an annual recurring revenue model and its license business is declining. And so you saw that last quarter declined around 6%. And you're seeing a major shift from on-prem to cloud with Oracle. ERP, cloud ERP is where the action is for Oracle and I'll show you some data on that from ETR. It's really fusion, fusion ERP and NetSuite, they're growing it combined well over 30% last quarter. And as they say, the news here is Mark Herd is going to leave of absence, we got Oracle OpenWorld coming up next week. And they're going to be talking about what we call cloud 2.0, Larry Ellison, I'm sure is going to be talking about autonomous database. There's going to be, I'm sure some Exadata announcements and I'll talk a little bit more about why that's important. Now I want to share with you some spending intentions from ETR. We've been, the last couple of months we've been sharing enterprise technology research data, we've partnered with them to do these breaking analysis and these cube insights. ETR has a panel of about 4,500 CIOs, IT practitioners and they go out quarterly and do spending intention surveys. And I'm showing you data now from the July 2019 survey focused on spending intentions for the second half of 2019. You can see the number of survey respondents was 1,068 out of that 4,500 panel. What this slide shows is if you look in the left hand side you can see the products or the categories of spend. So there's on the reading top to bottom fusion, Oracle Fusion, NetSuite, Oracle overall and then Oracle on-prem. So these are the categories, some of the categories that ETR captures. And what we're showing here is the calculation of net score and I'll share with you how net score is calculated. So if you look on the left hand side you'll see the dark red. That is where leaving the platform. The light red is we're going to spend less. The gray is spending is flat. The dark green is we're going to spend more and the lime green is we're adding the platform. So if you take the green minus the red you get net score. So let's look down, as I said, Fusion and NetSuite are where the action is for Oracle. You see the net score here is 14% for Fusion, 12% for NetSuite, Oracle itself is 7% and Oracle on-prem is minus four. These are not great scores. We shared with you just recently Snowflake and it's net score. Snowflake's net score is 81%. We shared with you some data around UI path. That's also 80% plus net score. These are much smaller companies but they're growing very, very fast and I'll share some other scores from Oracle competitors in just a moment. I also want to point out the shared accounts. What the shared accounts are is the number of mentions that these platforms received within that end of 1068. So you can see the Fusion and NetSuite, relatively small at 80 and 87 but still statistically significant. Oracle itself very, very large, huge install base 1329 and then Oracle on-prem 282. So there you have it. I mean, this is not barn burning. This to me underscores that Oracle is losing share and I'll show you that in context in this next slide. So again, same kind of format with the net score calculation but what I've done is compared Oracle to ServiceNow Workday, Salesforce and SAP. Now look at ServiceNow. ServiceNow is a net score of 53% with a number of shared accounts of 358. So very large sample inside of that 1068. I'll show you some time series at a moment. ServiceNow, obviously very strong company. They got a valuation now that's up actually higher than Workday, believe it or not. We've talked a lot about the CEO transition on and on and on and we've covered the ServiceNow shows for many years but so very strong, very strong install base growing their TAM into new markets. And so you can see there, now Workday as well, extremely strong. Now, Oracle will often give examples of how it's beating Workday. I think in the earnings call yesterday, Ellison talked about how they beat Workday at McDonald's. When you peel the onion on those things, oftentimes it's one division or but who knows? It's very possible that Oracle swept the floor of Workday but regardless, Workday is growing much, much faster than Oracle. It's taking share from Oracle despite the examples that Oracle gives. Salesforce as well, same with Salesforce. It's growing much, much faster than Oracle. If you look at ServiceNow, Workday and Salesforce, even SAP look at SAP's net score 31% which frankly, we consider neutral and it's not like SAP's burning the barn either but much, much stronger than Oracle's 7% net score. So again, I say it's sort of more of the same. Oracle's earnings are kind of met. I mean, it throws off great cash flow. It's got great earnings but there's no growth there and as a result, people are down in the stock a little bit today and that combined with the herd news and the stock should be down based on the earnings announcements. A little bit of a disappointment. Of course, Oracle focuses on the profit and today people are rewarding growth. That may change and I'll talk more about that in a moment. But before I do that, I want to show you a time series. So this is those same competitors, ServiceNow, Workday, Salesforce, SAP and Oracle all the way back to January 2017, the January 2017 survey. So you can see that ETR takes these surveys in January, April, July and October. They're just now running the October survey. So we'll have some up-to-date results there. But you can see the net score is what I just showed you, 53%, 52%, 44% for those leaders, those growth leaders, very, very strong. These are the share gainers. SAP holding at 31%. You can see Oracle down in the single digits. Each of these companies is actually kind of holding serve if you will. But again, ServiceNow, Workday, Salesforce, they're growing much, much faster than the market, growing much, much faster than Oracle. So let me summarize. So again, Mark Herd leaving a leave of absence for medical reasons, Ellison, Larry Ellison and Safra Katz are filling in for Herd. I'm sure you're going to hear some more talk about that at Oracle Open World this week. Oracle's losing share in the enterprise software space. Despite what they tell you, that's a fact. They are a company around cash flow, EPS and stock buybacks. That's how they're keeping the stock up. It's an effective technique. Everybody does it. Oracle makes tuck in acquisitions here and there. Been very aggressive over the years and it's going hard after cloud. It's an Oracle cloud. It really is around their database which the Oracle remains the leader for mission critical database. Oracle has the best database for mission critical but it's under attack in all those non-mission critical areas whether it's Mongo. We showed you the snowflake data the other day. I mean there's just dozens and dozens of database competitors that are going after Oracle in the periphery. But they remain the core leader in mission critical database. Fighting it out with Microsoft and IBM and others but Oracle is far and away the leader there. Exadata is the key to Oracle's lock spec in our opinion because Oracle's got to fight for, if it's straight database, they've got to fight all these other database competitors. Once a customer decides on Exadata, Oracle's got them. And so that's why Oracle's putting so much effort into Exadata. I'm sure at Oracle Open World this week you're going to hear a lot about Exadata and Autonomous and all kinds of stuff that they're doing at Exadata and try to make it an increasingly competitive platform. So Oracle also has a very strong apps business and that's really the linchpin to its cloud. Its cloud in our view is not even closely competitive with the cloud infrastructure at Amazon, Google and Microsoft and those companies spend much, much more on CapEx. They have a much greater infrastructure as a service. Microsoft in Microsoft's case got a very strong software estate and applications business, Google massive scale. So from just a cloud infrastructure standpoint, really Oracle is playing catch up just like IBM is and probably will never catch up. Oracle overall again, it's sort of a story of meh, more of the same until the market sentiment shifts toward cash flow and earnings, its stock is in my view is going to trade inside a range. I'm not a stock picker. I don't make stock recommendations kind of a fundamental analysis and observer. I just don't see that stock breaking out. There's really no growth story there and the market's rewarding growth. Now, if and when the market does turn down, let's say there's a recession, people will reward companies like Oracle. You have the cash who can do the buybacks or companies that pay dividends. And so Oracle holding serve, making a lot of right moves. Larry Ellison is leading the ship. Obviously a very smart person don't bet against that individual. Fact is they're losing share, but at the same time, they're running a playbook that's working and it's working from a standpoint of EPS and cash flow. And I think that story is going to continue. So there you have it, that's our analysis. Thanks for watching everybody. We'll see you next time. This is Dave Vellante with CUBE Insights, powered by ETR.