Oracle Corp. (
reported unimpressive fourth-quarter fiscal 2014 results. Earnings
of 89 cents (including stock-based compensation but excluding other
non-recurring items and related tax effect) missed the Zacks
Consensus Estimate by 4 cents.
Earnings (excluding stock-based compensation and other
non-recurring items and related tax effect) increased 5.7% year
over year to 92 cents per share, in line with the lower-end of
management's guided range of 92 to 99 cents.
Revenues also missed the Zacks Consensus Estimate of $11.46 billion
for the second consecutive quarter.
Revenues increased 3.3% year over year to $11.33 billion in the
fourth quarter of fiscal 2014. The year-over-year growth was
slightly above the lower-end of management's guided range of
Software revenues (78.7% of revenues) increased 4.3% year over year
to $8.92 billion, primarily driven by a 6.6% increase in software
license update and product support revenues. New software licenses
remained almost flat on a year-over-year basis.
Cloud SaaS and PaaS revenues jumped 23.4% year over year to $327.0
million. Cloud IaaS revenues increased 13.3% from the year-ago
quarter to $128.0 million. All the three segments are approaching
$2.0 billion run rate.
Cloud bookings jumped 37.0% in fiscal 2014, with fourth quarter
being the strongest. In cloud ERP, Oracle won 120 customers during
the quarter. The company added 320 customers who adopted Human
Capital Solution (HCM). Marketing automation bookings surged 200.0%
in the reported quarter.
Hardware revenues of $1.47 billion increased 2.2% on a
year-over-year basis. The improvement was primarily due to 2.5% and
1.9% year-over-year growth in hardware systems product and hardware
systems support revenues, respectively.
Engineered systems (Exadata, Exalogic, Exalytics, Big Data
Appliance and SPARC SuperCluster) grew in double digits in the
quarter and now accounts for approximately one-third of hardware
product revenues. The company will ship its 10,000th engineered
system in the first quarter.
Services revenues declined 3.6% year over year to $940.0 million in
the reported quarter.
Geographically, the Americas decreased 0.9% year over year to $5.86
billion. Europe, Middle East and Africa (EMEA) increased 13.2% from
the year-ago quarter to $3.77 billion. Asia Pacific declined 0.8%
year over year to $1.70 billion.
Total operating expenses as a percentage of revenues (excluding
one-time items) increased 20 basis points (bps) from the year-ago
quarter to 51.1%. Sales & marketing (S&M), research &
development (R&D) and Services jointly incurred 75.2% of the
operating expenses in the quarter.
S&M and R&D expenses both increased 40 bps each on a
year-over-year basis in the quarter. The year-over-year increase in
S&M expense reflects Oracle's growing sales personnel base.
However, services as a percentage of revenues declined 50 bps from
the year-ago quarter.
Operating margin (including stock-based compensation but excluding
one-time items) contracted 20 bps year over year to 48.9%.
Net income (excluding stock-based compensation and other one-time
items) was $4.19 billion compared with $4.11 billion in the
Oracle exited the quarter with cash and marketable securities of
$38.82 billion compared with $37.22 billion at the end of the
previous quarter. GAAP operating cash flow was $14.92 billion
compared with $15.03 billion in the previous quarter.
Free cash flow of $14.34 billion ($14.42 billion in the previous
quarter) was noteworthy, providing ample liquidity to Oracle in
order to pursue acquisitions, sustain dividend payments and further
share repurchase. Oracle bought back 49.0 million shares for $2.0
billion in the quarter.
For the first quarter of 2015, Oracle expects non-GAAP earnings in
the range of 62 to 66 cents per share. This is much better than the
Zacks Consensus Estimate of 60 cents.
Revenues on a non-GAAP basis are expected to grow in the range of
3.0% to 5.0% (in dollars). New software license and cloud revenue
growth is expected to range within 6.0% to 8.0%.
SaaS and PaaS revenues are forecasted to grow 25.0% to 35.0% (in
dollars). IaaS is forecasted to grow in the range of 9.0% to 19.0%.
Hardware revenues are expected in the range of (1.0%) to 3.0% in
the upcoming quarter.
Oracle plans to expand SaaS bookings over 50.0% in fiscal 2015.
Although Oracle's fourth-quarter results were disappointing, 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
However, Oracle's continuing transition from licensing where
revenues are recognized upfront to cloud subscription model where
it is recognized over the years, will hurt the top line in the near
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 business will continue to face stiff
competition from Workday and
. In ERP,
SAP AG (
remains a dominant force, while in the IaaS segment it will compete
against the likes of Amazon. Further, hardware revenue growth will
suffer due to sluggish IT spending and competition from
International Business Machines (
Currently, Oracle has a Zacks Rank #3 (Hold).
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