Oracle delivered some very strong Q3 numbers — particularly a booming RPO total of $80 billion, up 29% — but once again had to say that it is missing out on some cloud-infrastructure business because it doesn’t have enough data-center capacity.
While having more demand than you can handle is certainly a good problem, it is nonetheless a problem. So while it is true that Oracle’s continuing to book massive cloud-infrastructure deals for the future, its short-term growth — total cloud revenue for the quarter ended Feb. 29 was $5.1 billion, up 25% — is falling short of expectations because the company cannot build new cloud data centers fast enough to meet surging customer demand.
Here’s a list of the Q3 highlights, and for context I’ve included the results from Q2 as well.
| Q3 ended 2/29/24 | Q2 ended Nov. 30, 2023 | |
| Total Cloud Revenue | $5.1 billion, +25% | $4.8 billion, up 25% |
| Cloud Infra. Revenue | $1.8 billion, +49% | $1.6 billion, up 52% |
| Cloud Apps Revenue | $3.3 billion, +14% | $3.2 billion, up 15% |
| Fusion Cloud ERP Rev. | $800M, +18% | $800 million, up 21% |
| NetSuite Cld. ERP Rev. | $800M, +21% | $800 million, up 21% |
| Total RPO | $80 billion, +29% | $65 billion |
Here’s how CEO Safra Catz conveyed the good news and not-so-good news in the Q3 earnings press release in which she unequivocally states that customer demand for Oracle’s cloud-infrastructure services and solutions is simply overwhelming the company’s ability to keep up:
“Large new cloud infrastructure contracts signed in Q3 drove Oracle’s total Remaining Performance Obligations up 29% to over $80 billion—an all-time record. We expect to continue receiving large contracts reserving cloud infrastructure capacity because the demand for our Gen2 AI infrastructure substantially exceeds supply—despite the fact we are opening new and expanding existing cloud data centers very, very rapidly. We expect that 43% of our current $80 billion of Remaining Performance Obligations will be recognized as revenue over the next four quarters, and that our Gen2 Cloud Infrastructure business will remain in a hypergrowth phase — up 53% in Q3 —for the foreseeable future.”
I have to admit that I was surprised by two things here: first, the supply constraints that held overall cloud growth to 25%; and second, the magnitude of the jump in RPO to $80 billion — $34.4 billion of which will be recognized as revenue within the next four quarters.
Clearly, this puts Oracle in the position of having to continue simultaneously demonstrating two key issues to customers and prospects:
- That Oracle Cloud Infrastructure remains superior in performance and cost to what the other three hyperscalers are offering; and
- That Oracle, while supply-constrained right now, will rapidly get enough data-center capacity online to meet the needs of those customers before Microsoft, Google Cloud, and Amazon convince them to make the leap to other cloud providers that might lack Oracle’s levels of performance but do have capacity right here and right now.
I’ll have more on Oracle’s Q3 and its supply/demand situation later this week after listening to the earnings call with financial analysts, which took place after I had to submit this analysis.
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