Oracle Q4 revenue up 18%, boosted by Cerner acquisition and strength in cloud businesses

Cerner brought in $1.5 billion in revenue in the latest quarter, boosting strong growth for enterprise software giant Oracle. The health IT company also generated $5.9 billion in revenue for Oracle's 2023 fiscal year, which ended May 31.

Oracle's revenue reached an all-time high of $50 billion last year, driven by growing demand for its cloud offerings from companies deploying AI.

"Annual revenue growth was led by our cloud applications and infrastructure businesses which grew at a combined rate of 50% in constant currency. Our infrastructure growth rate has been accelerating—with 63% growth for the full year, and 77% growth in the fourth quarter," CEO Safra Catz said during the company's fourth-quarter and full-year earnings call Tuesday. "Our cloud applications growth rate also accelerated in FY23. So, both of our two strategic cloud businesses are getting bigger—and growing faster. That bodes well for another strong year in FY24."

Oracle bought the health technology firm for $28 billion a year ago to push deeper into the healthcare market and help boost its cloud business.

Oracle's revenue for the fourth quarter jumped about 18% to $13.8 billion, beating analysts' estimates of $13.74 billion. That's up from $11.84 billion in the prior-year quarter.

Cloud revenue rose 54% to $4.4 billion.

The IT and cloud infrastructure provider's top and bottom lines for the May quarter surpassed expectations, and its quarterly revenue guidance exceeded estimates. Oracle reported fourth-quarter net income of $3.32 billion, or $1.19 a share, compared with $3.19 billion, or $1.16 a share, in the same quarter last year. 

Excluding stock-based compensation, amortization and other charges, Oracle earned $1.67 a share, compared with $1.54 a year ago.

Catz said during the earnings call that first-quarter revenue is expected to grow from 8% to 10% and total cloud revenue is projected to grow 29% to 31% in the first quarter.

"We are seeing unprecedented demand for our cloud services and especially our AI services. As a result, I expect cloud revenue, excluding Cerner, will continue growing at least similar rates to what we experienced in fiscal 2023, even though our base is much bigger and may be higher," Catz said. "As our high-growth cloud revenues are becoming a larger, larger portion of total revenue, we are seeing an acceleration of our total revenue growth. I expect this trend will continue in fiscal 2024."

Oracle Chairman and CTO Larry Ellison told analysts and investors that he expects the company to continue making headway in healthcare with its applications and artificial intelligence capabilities.

"We not only have all the Cerner healthcare apps for hospitals, we've specialized our ERP system for hospitals, we've specialized our HCM for managing the hospital workforce. We've done a bunch of things around the healthcare industry," Ellison said.

"One of the things we want to do is, you know, we're the largest provider of clinical trial software. But the results of the clinical trial goes to a government regulator. And we're now working with the government regulators to develop the software that allows them to take the clinical trial output in digital form and get it through the regulatory process much faster at a much lower cost," he added.

Oracle is looking at the "entire healthcare ecosystem and trying to automate both sides of the transaction," Ellison said. "The pharmaceutical company that's designing the drug, the hospitals that are testing the drug, and the regulators that are approving the drug should all be digitized. And we are well on our way to doing that because of our investment in Cerner and, now, what has blossomed into an investment across the entire healthcare ecosystem."

Oracle executives also touted the company's collaborations in the AI space, specifically with a focus on generative AI and large language models.

Chip maker Nvidia is using Oracle's cloud platform for AI development and the two companies are working together to build the world’s largest high-performance computer, which will run AI at 16,000 GPUs, Ellison said during the earnings call.

"Our generative AI cloud customers have recently signed contracts to purchase more than $2 billion of capacity in Oracle's Gen2 Cloud," he said.

The company also inked a partnership with startup Cohere to launch a generative AI cloud service for enterprise customers as innovations around the technology are starting to heat up.

"Cohere and Oracle are working together to make it very, very easy for enterprise customers to train their own specialized large language models while protecting the privacy of their training data. Over the next few years, lots of companies are going to train their own specialized large language models," Ellison said. "In healthcare alone, specialized large language models will speed the discovery of new life-saving drugs, improve the quality of patient care, and increase access to healthcare by lowering costs."

CIOs have major reservations about Cerner's tech road map

The Cerner deal last year helps Oracle push deeper into the healthcare market and the database giant is betting big that the acquisition will help scale up its cloud business.

But, Oracle Cerner customers in the healthcare industry continue to have reservations about the future of the EHR company, citing the lack of a concrete road map.

Analysts at KLAS Research have spoken with Oracle Cerner customers in the past year and found that CIOs are concerned about the company's vision.

"In March 2022, respondents were generally more optimistic about Oracle Health being a long-term partner. That optimism has dropped over the course of the year, and in November, about one-fourth of respondents reported they no longer see the vendor as a viable long-term partner. Large organizations (1,000+ beds) most commonly switched opinions; many who were previously on the fence now report that Oracle Health is no longer part of their long-term plans, saying there has been very little meaningful communication about RevElate and that they can’t keep waiting for the vendor to deliver," KLAS Research analysts wrote in a March report.

RevElate is Cerner's patient accounting solution rolled out in 2021.

"Respondents attribute their decreased confidence to several concerns, such as the unspecific road map, undelivered improvements and possible price increases under Oracle Health," the analysts wrote.

"To boost our confidence, we would need a software development roadmap. We want to know where they are going and what they are going to work on. They talk about RevElate but not where they are going with it. There are issues with scheduling and EHR functionality, but we don’t know what they are going to be bringing to market and fixing over the next year," said one hospital CIO as cited in the report.

Oracle has shared a high-level vision for the future, specifically, Ellison laid out plans to build a national health record database that would pull data from thousands of hospital-centric EHRs. But most hospital IT executives that KLAS spoke to expressed concerns about the vendor’s ability to deliver.