Database and business software giant Oracle Corp. beat expectations with its second-quarter financial results today thanks to what it said was strong growth in its cloud services offerings.

The company reported a profit before certain costs such as stock compensation of $1.06 per share on revenue of $9.8 billion, up 2% from the same period a year ago. That was better than expected, Wall Street having forecast a profit of a dollar a share on revenue of $9.77 billion.

Oracle executives told analysts in a conference call that its cloud services were in more demand this year thanks to the COVID-19 pandemic, which has forced many corporate employees to work from home.

Oracle Chief Executive Safra Catz (pictured) said the standout performer this quarter was Oracle’s cloud subscription business, including what it calls Oracle Cloud Infrastructure or OCI. She noted that Oracle’s Fusion and NetSuite Cloud enterprise resource planning applications businesses saw revenue growth of 33% and 21%, respectively, during the quarter.

“These two strategic cloud applications businesses are major contributors to Oracle’s increased operating earnings and consistent earnings per share growth,” Catz said in a statement. “We expect this rapid market share and revenue growth trend to continue as both Gartner and IDC rank Oracle’s ERP suite number one in the cloud.”

Oracle’s co-founder and Chairman Larry Ellison chipped in, telling analysts on the call that the quarter could have been even better. “We would have had more revenue growth if we had not been capacity-constrained in OCI during quarter two,” he said.

Oracle’s cloud services and license support business, which is by far its largest, logged a 4% revenue rise year-over-year, to $7.11 billion, slightly above Wall Street’s estimate of $7.04 billion. But within that segment, the company’s second-generation cloud infrastructure revenue rose by 139%, Catz said in the call.

Nucleus Research analyst Trevor White told SiliconANGLE that he believes Oracle is becoming a more legitimate challenger to the likes of Amazon Web Services and Microsoft Azure as momentum in the cloud infrastructure space shifts toward Oracle’s infrastructure-as-a-service offerings. “Net new deals to both its IaaS and enterprise application segments over the last year underpin the strong results,” White said.

The company’s smaller businesses all declined, though. For instance, revenue in the cloud license and on-premises license segment declined 3% from a year ago, to $1.09 billion. During the previous quarter, that unit’s revenue grew by 9%.

Hardware sales fell too, declining by 3%, to $844 million, while services revenue fell 7%, to $752 million.

“The challenge for Oracle is that cloud and on-prem licensing was down, more so than expected,” White said.

Analyst Charles King of Pund-IT Inc. told SiliconANGLE that Oracle, like other mainstream enterprise technology providers, is moving as quickly as it can toward a cloud and platform services future but is suffering from some slips along the way.

“The main trick in such circumstances is to ensure that revenues from new endeavors accelerate faster than traditional businesses decline,” King said.

Doing so is tricky, but Oracle managed to pull it off and that’s good news for the company’s investors, another analyst, Holger Mueller of Constellation Research Inc., told SiliconANGLE.

“Oracle’s cloud services and license support grew faster than the license revenue and hardware and services shrank,” Mueller said. Still, he noted that while Oracle’s executives are being bullish on their cloud license revenues, “the vendor does not break out its license versus on-premises license sales, so we have to take their word for it.”

Mueller said that besides the impressive revenue growth, Oracle also did very well with its cost management, spending almost $400 million less on sales and marketing than it did in the first six months of last full year. It also kept its general and administrative expenses constant and increased spending on research and development.

“What’s also important is for Oracle to keep investing in capital expenditures during these difficult times, as that’s needed to keep up its cloud revenue growth,” Mueller said. “Oracle did so, spending more than $1.8 billion in the quarter, which may well be a company record.”

It was a busy quarter for Oracle, as the company announced a new cloud-based observability service that enables organizations to monitor the health of the different parts of their applications that can run in the cloud or on-premises. The company also launched a new high-performance database service called Oracle Exadata Cloud Service X8M that’s designed to handle the most intensive transaction processing and data analytics projects.

Oracle’s cloud business may also benefit from the Central Intelligence Agency’s Commercial Cloud Enterprise, which was awarded to multiple cloud providers in November. It enables Oracle and other cloud providers like to compete for CIA and other security agency task orders at different security classification levels.

Outgoing U.S. President Donald Trump said during the quarter that he agreed in principle to a deal in which Oracle and Walmart Inc. would acquire part of ByteDance Ltd.’s popular TikTok application and host the app and its data on its cloud infrastructure. That deal has yet to be finalized.

For the current quarter, Oracle forecast a profit of between $1.09 and $1.13 per share, saying that it expects revenue to grow by 2% to 4%. Analysts had projected earnings of $1.04 a share on revenue growth of just over 1%.

“Oracle needs to show how it can grow cloud revenues again and continue to expand its cloud license revenue in what will be a challenging holiday quarter,” Mueller said.

King said the modest guidance for the third quarter was quite sensible given the continuing economic uncertainties. “Additionally, the future of the TikTok deal that Oracle is hoping will spur additional cloud revenues is uncertain at best, given the imminent arrival of the Biden administration’s new trade officials and priorities,” he said.

Photo: Oracle/Flickr