Oracle Corp. (
plunged approximately 8.8% ($2.91) on the heels of a less than
impressive fourth quarter result. The company reported earnings
of 84 cents per share in fourth quarter 2013 (including
stock-based compensation of $186.0 million), which was in line
with the Zacks Consensus Estimate. However, revenues missed the
consensus estimate of $11.27 billion.
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Revenues of $10.96 billion remained flat on a year-over-year
basis while jumping 22.2% sequentially. Revenues were within
management's guided range of (1.0%) - 4.0% growth forecast.
The flat year-over-year revenues were primarily due to
lower-than-expected growth in the software segment coupled with
lackluster performance from the hardware and services segment in
Software revenues climbed 3.3% year over year to $8.44 billion,
primarily driven by a 5.9% increase in software license update
and product support revenues. New software licenses and cloud
software subscription revenues inched up 0.7%, which missed the
lower end of management's guided range of 1.0% to 11.0% growth.
Software revenues jumped 26.3% on a sequential basis as new
software licenses and cloud software subscriptions surged 72.5%
from the previous quarter. The sequential improvement was
primarily due to significant improvement in sales force
New software licenses and cloud software subscription sales were
weak in Asia-Pacific, where revenues declined 7.0% year over
year, while in Americas and Europe, the Middle East & Africa,
revenues increased 4.0% and 5.0%, respectively.
Hardware revenues declined 9.2% year over year to $1.44 billion.
This was primarily due to a 13.1% year-over-year decline in
hardware systems products revenues. Sequentially, hardware
revenues jumped 15.4%, driven by a 26.5% increase in hardware
systems products revenues.
Engineered systems (Exadata, Exalogic, Exalytics) revenues jumped
approximately 50.0% in the quarter. Oracle's engineered systems
continued to grab share from P-series of
International Business Machines (
The company sold more than 1200 systems, which include 600
Exadata units and 100 units of Exalytics. Oracle added a number
of new customers in the quarter that include the likes of
, Siemens and
Hardware systems product sales declined in all the regions with
Americas down 12.0%, followed by Europe, the Middle East &
Africa, where revenues declined 11.0% year over year in the
quarter. Revenues declined a massive 17.0.0% in the Asia-Pacific
Services revenues declined 9.5% year over year but increased 4.1%
sequentially to $1.09 billion in the reported quarter.
Total operating expenses as a percentage of revenues declined 30
basis points ("bps") from the year-ago quarter and 440 bps from
the previous quarter to 50.9%. Sales & marketing ("S&M"),
research & development ("R&D") and Services jointly
incurred 83.0% of the operating expenses in the quarter.
S&M and R&D expenses increased 90 bps and 30 bps,
respectively on a year-over-year basis in the quarter. However,
services as a percentage of revenues declined 70 bps from the
Operating margin jumped 30 bps on a year-over-year basis to
49.1%, primarily due to declining operating expenses, which fully
offset flat year-over-year revenues. On a sequential basis,
operating margin increased 440 bps to due higher-than-expected
decline in operating expenses.
Net income margin contracted 10 bps from the year-ago quarter but
increased 310 bps sequentially to 36.4% in the quarter.
Earnings per share increased 5.1% year over year and 35.2%
quarter over quarter to 84 cents in the quarter.
Oracle exited the fourth quarter with cash and marketable
securities of $32.22 billion compared with $33.41 billion at the
end of the previous quarter. GAAP operating cash flow was $14.22
billion compared with $13.72 billion in the previous quarter.
Free cash flow of $13.57 billion ($13.03 billion in the previous
quarter) was impressive providing ample liquidity to Oracle in
order to pursue acquisitions, sustain dividend payments and
further share repurchase. Oracle bought back 85.0 million shares
for $2.8 billion in the quarter.
For the first quarter of 2014, Oracle expects non-GAAP earnings
in the range of 56 to 59 cents per share.
Total revenue on a non-GAAP basis is expected to grow in the
range of 3.0% to 6.0% (in $). New software license and cloud
subscription revenue growth is expected to range from 0.0% to
8.0%. Hardware product revenues are expected to decline in the
range of (6.0%) to (2.0%) in the upcoming quarter.
Oracle is restarting its quarterly dividend payment and hiked its
dividend by 100.0% to 12 cents. Oracle's board of directors also
approved an additional share buyback program worth $12.0 billion.
We believe that Oracle needs to improve top-line growth in order
to boost investor confidence in the near term. We believe that
the speedy adoption of engineered systems and cloud suites will
drive incremental top-line growth going ahead.
Moreover, improving sales execution will result in strong
conversion as well as win rates in the near term. Hardware growth
is also expected to rebound in the first quarter of 2014, driven
by new product introductions.
However, continuing macro-economic weakness and stiff competition
from IBM remain major headwinds in the near term.
Currently, Oracle has a Zacks Rank #4 (Sell).