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Oracle (ORCL) Beats on Q3 Earnings & Revenues; Stock Up

Oracle CorporationORCL delivered impressive third-quarter 2017 results. Earnings (including stock-based compensation) of 63 cents per share and revenues of $9.27 billion comfortably beat the Zacks Consensus Estimate of 57 cents and $9.24 billion, respectively.

Earnings (excluding stock-based compensation) increased 7.8% to 69 cents per share, which was within the company's guided range of 61-64 cents. Unfavorable foreign currency impacted earnings by a penny.

Revenue growth of almost 3% (4% in constant currency) was within management's guided range of 3-5%. Adverse currency movements impacted total revenue by 1% in the quarter.

Oracle Corporation Price, Consensus and EPS Surprise

Oracle Corporation Price, Consensus and EPS Surprise | Oracle Corporation Quote

Shares were up almost 6.5% in pre-market trading . We note that Oracle's gain of 12.0% is better than the Zacks Computer Software Industry's increase of 8.6% on a year-to-date basis.

Top-line Details

Oracle's top-line growth benefited from the ongoing cloud-based momentum. Total cloud revenue (13.6% of total revenue) soared 70.7% to $1.26 billion in the reported quarter.

Cloud SaaS and PaaS revenues advanced a significant 84.6% year over year to $1.08 billion, which was within management's guided range of 82-86%. IaaS revenues increased 17.1% to $178 million.

Strong cloud results fully mitigated weak on-premise software revenues (67.5% of total revenue), which declined 2.7% to $6.18 billion. ERP, Fusion HCM and CX (customer experience) revenues gained 280%, 106% and 16%, respectively. Database as a Service was up a whopping 427% from the year-ago quarter. PaaS was up 375% year-to-date, with cloud services up 300%.

Oracle Corporation - Earnings Surprise | FindTheBest

Total cloud and on-premise software revenue grew almost 5% in constant currency to $7.43 billion.

However, hardware revenues continued to decline in the quarter. Total hardware revenue slipped 9.4% year over year to $1.03 billion.

Services revenues increased 2.4% to $812 million.

Strong Bookings & Customer Additions

SaaS and PaaS infrastructure bookings were $322 million and $223 million, respectively in the quarter. Overall, cloud bookings jumped 73%. Oracle stated that SaaS and PaaS billings were up 111% on a year-over-year basis. The company added 1,125 new SaaS customers.

Oracle stated that 480 new customers bought CX. In HCM, the company had 206 new customers that include the likes of America Movil, Cedars-Sinai Medical Center, Ford, Emerson, Hilton, Hyundai Motor, Jefferies, Rogers Communications and others.

In ERP, the company added 564 new customers excluding NetSuite. Almost 50% of the new ERP customers were first-time users that indicated continuing market share gain against Workday WDAY .

Per the company, Active ERP customer base is now almost 3,700, with 1,465 live customers, 10 times that of Workday. The company has 13,103 customers in SaaS active base and 25,000 with NetSuite in total.

Operating Details

Total operating expenses (including stock-based compensation) as percentage of revenues increased 30 basis points (bps) to 60.1% in the reported quarter. The increase can primarily be attributed to higher cloud SaaS and PaaS, IaaS and research & development (R&D) expenses in the quarter, which were up 80 bps, 40 bps and 70 bps, respectively.

SaaS and PaaS gross margin was 65% significantly higher than 51% reported in the year-ago quarter. IaaS gross margin was 30% lower than management's expectation due to continued investments.

Operating margin (including stock-based compensation) contracted 100 bps from the year-ago quarter to 38.5%.

Share Repurchase & Dividend

Oracle bought back 30 million shares for a total of $500 million in the third quarter. The company's board of directors increased the quarterly dividend by 27% to 19 cents per share.

Guidance

For fourth-quarter fiscal 2017, total revenue is anticipated to grow in the range of (1%) to 2%. A strong U.S. dollar is expected to impact revenues by at least 2%. SaaS and PaaS revenue is anticipated to grow in the range of 69-73%. IaaS is expected to grow 25-29%.

Software and cloud revenue, including SaaS/PaaS and IaaS, new software license and software support is expected to grow 1-3%.

Earnings are anticipated to be between 78 cents and 82 cents for the quarter, with a couple of cents impact from adverse currency headwind.

For fiscal 2017, Oracle now expects SaaS and PaaS revenues to grow 81% (up from earlier guidance of 80%). Moreover, management anticipates SaaS and PaaS gross margin to eventually rise to 80% in the long haul.

Our Take

Oracle continues to gain traction on its cloud endeavors. Specifically, the company's offerings in SaaS and PaaS have gained significant momentum in the past few quarters, which improves competitive position against salesforce.com CRM and Workday. Further, the introduction of Gen 2 IaaS data centers is expected to improve Oracle's competitive prowess against Amazon AMZN .

Oracle continues to win new customers in HCM, ERP and CX. We believe the company's growing cloud market share will continue to drive top-line growth for the foreseeable future.

However, the transition from on-premise licensing to cloud-based subscription business model will take some more time to complete, which will impact near-term results. Moreover, higher investments on IaaS will affect gross margin expansion. Further, a strong U.S. dollar remains a headwind.

Zacks Rank

Currently, Oracle carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 (Strong Buy) Rank stocks here .

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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 Nasdaq, Inc.


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

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