When trying to understand why some high-flying enterprise software firms are growing as fast as they are, it's worth taking note of -- in addition to things like their addressable markets and IT spending trends -- the share that's being lost by some of their major rivals.
This came to mind while looking at Oracle's (ORCL) latest numbers. At a time when rivals such as Salesforce.com (CRM) , Workday (WDAY) , Microsoft (MSFT) and Amazon Web Services (just to name a few) continue registering strong growth for software and services that compete against Oracle's, Larry Ellison's company reported that its May quarter revenue fell 6% annually to $10.44 billion. A 22% drop in traditional software license revenue, much of which involves database sales, was the biggest culprit.
Oracle did suggest demand has improved a bit lately, as deal talks that were halted following the start of COVID-19 lockdowns begin resuming, and it guided for August quarter revenue to be down 1% to up 1%. But this is still well below the growth rates that many rivals are expected to post for their June and July quarters.
IBM (IBM) is another software giant whose share losses have made it easier for some of its rivals to see rapid growth. Big Blue's Cloud & Cognitive Software segment, which covers much of its software operations, officially saw revenue grow 5% in Q1 to $5.24 billion. But growth would've been weaker if not for the net effect of M&A transactions -- though asset sales were a headwind, the recent Red Hat acquisition boosted the segment's revenue by $716 million.
Red Hat, whose revenue was up 18% in Q1, is still doing pretty well. But in fields such as applications software, databases and transaction processing software, IBM is still having a tough time.
Meanwhile, though Zoom's (ZM) spectacular growth in recent months clearly has a lot to do with an explosion in remote work and learning activity, it also hasn't hurt that the company has been rapidly taking share from Cisco Systems' (CSCO) Webex conferencing platform and Microsoft's Skype for Business. Likewise, the strong growth that RingCentral (RNG) has steadily recorded for its unified communications-as-a-service (UCaaS) offerings has much to do with share gains against traditional unified communications players such as Cisco, Avaya (AVYA) and Mitel.
And in security software, one can't overlook the share losses that have been recorded by companies such as McAfee, Symantec and Trend Micro when gauging the strong growth reported by the likes of CrowdStrike (CRWD) and Proofpoint (PFPT) .
At a minimum, these market share shifts provide some important context when comparing the sky-high valuations that high-growth software companies such as Zoom and CrowdStrike (among many others) have been granted at a time when firms such as Oracle and IBM continue trading at pretty subdued valuations. While share gains don't necessarily justify the eye-popping multiples that the high-growth companies are now getting, they do show that the bull case for them isn't just about the addressable markets that they operate in.
