The ITAM Review

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Software vendor financial results #3 (Adobe, Microsoft, Oracle, Salesforce, ServiceNow)

financial results

Software vendor financial results (Adobe, Microsoft, Oracle, Salesforce, ServiceNow)

Software vendor financial results can be more interesting for ITAM & SAM managers than they might first appear. Looking at how the software vendors are performing on a quarterly and annual basis can give the savvy organisation some good insight. Who is likely to increase audits? Where might good discounts be found? What upcoming business model changes might impact us? Hints to potential answers for questions like this, and more, can be answered by taking a look at the vendor’s results. We’re seeing more information around the impact of the Coronavirus outbreak.

In this article, we look at the most recent results for:

Adobe

Q2 FY20

Revenue for the quarter was $3.13 billion, a 14% year-on-year increase. Net new Creative Cloud “Annualized Recurring Revenue” (ARR) was $352 million and overall Creative revenue was up 17% to $1.87 billion.
Document Cloud grew 22% year-on-year to $360 million and Adobe see the growth in both areas as partially relating to increased home working. They cite shortened deal cycles as organisations are forced to move away from paper-based processes, which is another good example of digital transformation being accelerated by COVID-19.

What does this mean for ITAM?

The main danger that Adobe poses to an organisation is over-spending on their SaaS products – and there’s a good chance this will have increased over the last few months. As Adobe highlight in their results, more people working from home has caused an uptick in use of both individual apps like Creative Cloud and also organisation wide digital document systems. These both present opportunities for over-licensing so doing a review of your Adobe position could lead to some cost savings being uncovered.

Further Reading

Adobe Investor Relations page
Adobe slides

Microsoft

Q3 FY20

Revenue for the quarter was up 15% to $35 billion and net income rose 22% to $10.8 billion.
The COVID-19 impact has been minimal for Microsoft. While they have seen a reduction in transactional licensing (especially in the SMB area) there has been a large increase in cloud usage – Microsoft call out Teams, Azure, Windows Virtual Desktop, Power Platform, Surface, and Windows OEM as all positively impacted.
Office 365 commercial revenue was up 25% with almost 258 million total seats. The Commercial Cloud division, which includes Office 365 (commercial), Azure, Dynamics 365, parts of LinkedIn and more, saw a 39% increase in revenue to $13.3 billion.
Over in the “Intelligent Cloud” section, investments in Azure saw operating expenses rise by 19%, while operating income rose by 42%. Revenue for server products grew 11%, at least partially driven by the end of support for Windows Server 2008.
Interesting to see Amy Hood, CFO, state that the supply chain in China returned at a faster pace than expected. She also pointed towards “strong upsell” to the Office 365 E5 SKUs.

What does this mean for ITAM?

On the earning call, Microsoft CEO Satya Nadella said they “have seen 2 years’ worth of digital transformation in two months” – a lot of which is things moving to the cloud and also “citizen developers” using Power Platform tools such as Power Automate and Power Apps to create bespoke in-house apps and tools. As an example, Nadella mentioned that Swedish Health Services (the largest non-profit health provider in Seattle) are now using Power Apps to track critical supplies. This rapid explosion of cloud and Power Platform use will bring 2 primary issues:

  • Cost management
  • License compliance

Both of which need to be addressed by ITAM teams.

Also, Hood stated that:

first stage for many of the licensing protocols was to include trial offers for many of our customers who were in need of the specific things we just discussed and, over time being able to convert that into a monetization engine

Making it clear that, not surprisingly, Microsoft aim to convert the potential new customers that have been brought their way via COVID-19.

With Microsoft’s end of Financial Year fast approaching at the end of June, it will be very interesting to see these software vendor financial results – particularly in light of COVID-19.

Further Reading

Microsoft earnings call transcript
Microsoft earnings call presentation

Oracle

FY20

Oracle’s Q4 revenue was down 6% year-on-year to $10.4 billion, while overall FY20 revenues were down 1% to $39.1 billion. The “cloud services and license support” division saw a 1% increase in Q4 and 3% for the year as a whole, whereas “cloud license and on-premise (sic) license)” saw a 22% drop in Q4 and 12% for the year.

What does this mean for ITAM?

Whenever a vendor’s results are less than stellar – which these are – one must consider what their strategy will be to turn things around. While the long-term plan must surely be to continue adding legitimate cloud wins, it is the short term that may be of concern. To stave off any further COVID-19 repercussions and to show shareholders an increase in revenue quickly, audits seems a likely place to which Oracle will turn. While it may be a pessimistic, prediction, I think it is likely to be correct – at least to some degree; so throughout this next financial year for Oracle (ending May 31, 2021) expect audit and cloud activities to increase – perhaps intertwined as we’ve already seen.

It’s likely that the increased focus on cloud will also lead to a reduction in discounts for on-premises software as they won’t want to incentivize what they see as the “wrong” behaviour. Consider what your Oracle bill might look like if current discounts were removed at renewal – how much more might you be paying?

In light of these results, review your Oracle position as thoroughly as possible, as soon as possible. If time/bandwidth is an issue, perhaps look to third parties to offer a short-term boost?

Further Reading

Oracle investor news

Salesforce

Q1 FY20

Revenue was up 24% overall with Sales Cloud growing 11% and Service Cloud 20%. Despite this, earnings dropped from $739 million in Q1 FY19 to $641 in Q1 FY20. Cashflow has remained strong – CFO Mark Hawkins noted that Salesforce generated more operating cashflow this quarter than in the entire fiscal year of 2016.

What does this mean for ITAM?

Salesforce execs spoke a lot about digital transformation and customer focus – in part powered by the Mulesoft acquisition – and also expanding reach into geographies where they’re not currently as strong. If you’re a Salesforce customer, I’d definitely keep a close eye on your estate for new products and add-ons appearing within certain departments. As they broaden the scope of their offering into new areas, that increases the possibility of de-centralised purchasing taking place within your organisation.

Further Reading

NASDAQ

Motley Fool

ServiceNow

Q1 FY20

ServiceNow saw 34% YoY growth in subscription revenue to $995m and they closed 37 net new customers with an annual contract value (ACV) of over $1m which represents 48% YoY growth and takes them to a total of 933.

CEO Bill McDermott stated that they’re working with customers “in new ways, enabling them to focus on their most critical workflows” as organisations are “splitting apart old value chains and reassembling them in end‑to‑end, mobile‑first experiences”. ServiceNow appear to be another beneficiary of the accelerated digital transformation that COVID-19 is driving.

What does this mean for ITAM?

ServiceNow are doing well in terms of growth, revenue, cashflow etc. so it’s a largely positive picture for them. The increased opportunities for digital transformation mean more reasons for organisations to purchase more offerings – so it’s likely your ServiceNow spend will be on the rise. While that’s not a bad thing if it’s helping your company survive and pivot, it does need to be reviewed and monitored:

  • Has de-centralised purchasing led to license duplication?
  • Are some areas over-licensed for their actual requirements?
  • Are there potential additional costs when certain limits or caps are hit?

Keep these questions, and more, in mind as you review any new software purchases with your internal stakeholders. These questions apply to a much broader range of vendors than just ServiceNow too!

Further Reading

ServiceNow Results

About Rich Gibbons

Rich has been in the world of IT and software licensing since 2003, having been a software sales manager for a VAR, a Microsoft licensing endorsed trainer, and now an ITAM analyst looking at software licensing and cloud.

A Northerner renowned for his shirts, Rich is a big Hip-Hop head, and loves travel, football in general (specifically MUFC), baseball, Marvel, and reading as many books as possible. Finding ways to combine all of these with ITAM & software licensing is always fun!

Connect with Rich on Twitter or LinkedIn.

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