The bears who love to take jabs at
) founder Larry Ellison are dithering from reality to launch a good
sucker punch when they suggest the model is broken.
Not everything is perfect in Oracle-land, but I don't think it's
nearly as bad as the recent stock price weakness implies it is.
While ORCL again fell slightly short of the midpoint of its recent
revenue guidance, it delivered non-GAAP earnings in line with the
$.87 consensus estimate. Had it not been for the strength of the US
dollar against some currencies like the Japanese yen during the
last quarter, ORCL would have reported non-GAAP earnings of $.88.
Hardware, which has been my big concern, actually appears to
finally be showing some modest traction, and ORCL promises it
"will" grow hardware revenue this year.
Things aren't perfect in software either, but I think the issues
there are more related to currency exchange rates and macroeconomic
weakness in some areas than a systemic problem with ORCL's business
model. While it's been a long time since we've seen it, the US
dollar has gained value against some other currencies, with the
most notable being the yen.
Contrary to some of the headlines I've read, ORCL seems to be
building solid traction in Software as a Service (SaaS), growing
there faster than its primary competitors. While trends in how
software and software services are billed may change during the
coming years, we've seen ORCL adapt to change in the past, and come
out better than it was before.
ORCL's free cash flow (
) for the year was $2.80 per fully diluted share, or about 5% above
non-GAAP earnings. ORCL has consistently delivered FCF in excess of
non-GAAP earnings during at least the trailing eight quarters.
ORCL committed to put its excess cash to work by doubling the
quarterly dividend to $.12 starting this July, and using $12
billion to buy its shares on the open market.
Bottom line: While there is nothing to suggest ORCL won't deliver
earnings this fiscal year in line with the $2.92 consensus, I'm
going to take a bit more cautious view and lower my estimated
full-value price range to $36 to $42.
I've seen ORCL fall out of favor plenty of times in the past, and
given the way Wall Street likes to beat the company up at the first
sign of a blemish, I wouldn't be surprised to see the stock drift
down into the high $20s before catching some support. If it breaks
$28, I'll probably add some shares to my personal account.
Meanwhile, I have speculated that an agreement between
) and ORCL would dispel rumors that CRM would switch from ORCL to
the open-source PostgreSQL data base.
As it turns out, not only is that threat off the table, it appears
CRM will adopt the full ORCL ecosystem. This is a huge win for
ORCL, and a very good deal for CRM. For ORCL, it will shut down the
pundits that have been claiming new open-source alternatives are
going to derail ORCL's business model.
It also benefits ORCL's brand name and lends more credibility to
the ORCL ecosystem design. For CRM, it opens new market
opportunities, and at least in theory, improves its customers' user
Editor's Note: This article was written by Paul McWilliams, the
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