Oracle Corp. (ORCL): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report

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Summary:
Oracle reported dismal fourth-quarter 2014 results with both earnings and revenues missing the Zacks Consensus Estimate. However, management provided positive guidance for the first quarter. The company's growth prospects in SaaS, PaaS and Big Data are encouraging. We believe that the speedy adoption of engineered systems and cloud suites will drive incremental top-line growth in 2015. However, Oracle s continuing transition from licensing, where revenues are recognized upfront, to cloud subscription model where it is realized over the years, will hurt near-term top line. Nonetheless, higher SaaS & PaaS adoption is expected to provide a recurring high-margin revenue base over the long term. However, increasing mix of lower-margin IaaS will hurt profitability. We believe that Oracle's cloud and hardware business will continue to face stiff competition, a major headwind in the long run. We, thus, maintain our neutral recommendation and set a price target of $44.00.

Overview:

Redwood City, Calif.-based Oracle Corp (ORCL) was founded in 1977 and incorporated later in 2005. Oracle is one of the largest enterprise-grade database, middleware and application software providers. With the acquisition of Sun Microsystems in Jan 2010, Oracle began selling hardware products and services, primarily comprising computer server and storage products.

Oracle's software and hardware products and services include Oracle Database, Oracle Fusion Middleware, Java and Oracle Engineered Systems. Oracle Engineered Systems include Exadata Database Machine, Exalogic Elastic Cloud, Exalytics In-Memory Machine, SPARC SuperCluster, Virtual Compute Alliance, Oracle Database Appliance, Oracle Big Data Appliance and ZFS Storage.

Oracle's software and hardware systems are also used in cloud-based environments. The company has expanded its cloud computing operations over the last couple of years. Oracle offers cloud solutions and services that can be used to build and manage various cloud deployment models. Built upon open industry standards such as SQL, Java and HTML5, Oracle Cloud provides access to application services, platform services and infrastructure services for a subscription. Through its Oracle Enterprise Manager offering, the company manages cloud environments.

Oracle reported revenues of $38.28 billion in fiscal 2014. The company operates in the Americas (53% of 2014 revenues), Europe, the Middle East and Africa or EMEA (31%) and the Asia-Pacific (16%). Oracle reports revenues under three heads Software and Cloud (76% of fiscal 2014 revenues), Hardware systems (14%) and Services (10%).

The Software and Cloud segment includes New Software Licenses and Cloud software subscriptions segment [also include software-as-a-service (SaaS) and platform-as-a-service (PaaS) offerings], Cloud infrastructure-as-a-service (IaaS) segment and software license updates and product support segment. The Hardware systems consist of two segments Hardware Systems Products and Hardware Systems Support. The Services business provides consulting, advanced customer support and training services.

The company sells its products and services primarily through subsidiary sales and service organizations, as well as through indirect channels such as original equipment manufacturers (OEMs), distributors, large account resellers (LARs), value added resellers (VARs), system integrators/implementers, consultants, education providers, Internet service providers, network integrators and independent software vendors. The company's customer base includes large businesses, government agencies, educational institutions and resellers. No single customer accounted for more than 10% of the revenues in fiscal 2013.


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



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