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Oracle (ORCL) Q1 Earnings Match Estimates, Revenues Miss

Oracle Corporation ORCL reported first-quarter fiscal 2020 non-GAAP earnings of 81 cents per share, which matched the Zacks Consensus Estimate. However, non-GAAP revenues of $9.220 billion missed the Zacks Consensus Estimate of $9.289 billion.

Nonetheless, the bottom line improved 14.1% from the year-ago quarter (up 16% in constant currency). The top line also increased 0.2% year over year and 2% in cc, which was within management’s guidance of 1-3% in cc.

Shares Down on Tepid Q2 Guidance

In the pre-market trading, shares of Oracle are down approximately 1.8%. The decline can be attributed to tepid fiscal second-quarter guidance and revenue miss in reported fiscal first quarter results.

Notably, for the fiscal second quarter, Oracle expects non-GAAP earnings per share to be 88-90 cents in cc (and 87-89 cents excluding currency impact). The Zacks Consensus Estimate for the same is pegged at 91 cents.



Markedly, Oracle stock has returned 26.3% year to date, underperforming the industry’s rally of 30.5%.

Top Line in Detail

Oracle reported total revenues (on a GAAP basis) of $9.218 billion, flat year over year (up 2% in cc).

Revenues by Offerings

Oracle’s top line benefited from the ongoing cloud-based momentum. Cloud services and license support revenues (74% of total revenues) for the reported quarter improved 3% year over year (up 4% in cc) to $6.805 billion.

Meanwhile, cloud license and on-premise license revenues (9% of total revenues) declined 6% year over year (down 6% in cc) to $812 million.

Hardware revenues (9% of total revenues) were $815 million, declining 10% (down 9% in cc) year over year.

Services revenues (8% of total revenues) decreased 3% to $786 million (down 2% in cc).

Revenues by Geography

Revenues from Americas (represented 55.9% of total revenues) were down 0.2% year over year to $5.150 billion.

Revenues from Europe/Middle East/Africa (27.7%) decreased 0.9% from the year-ago quarter to $2.553 billion.

However, revenues from Asia Pacific (16.4%) improved 4.1% from the year-ago quarter to $1.515 billion.

Break up of Cloud And License Revenues

Oracle reported total cloud and license revenues of $7.617 billion, which improved 2% from the year-ago quarter (up 3% in cc).

Applications revenues (represented 37% of total cloud and license revenues) came in at $2.821 billion, up 2% year over year (up 3% in cc).

Infrastructure related revenues (63%) came in at $4.796 billion, up 2% year over year (up 3% in cc).
 

Oracle Price, Consensus and EPS Surprise

 

Oracle Corporation Price, Consensus and EPS Surprise

Oracle Corporation price-consensus-eps-surprise-chart | Oracle Corporation Quote

Customer Expansion Bodes Well

Management announced that both NetSuite ERP and Fusion ERP businesses were up 33% in the fiscal first quarter. NetSuite ERP and Fusion ERP have customer strength of around 18,000 and 6,500, respectively. The expanding customer base is enabling the company to maintain its leading position in cloud ERP market.

Further, the next-generation autonomous database launched by Oracle, which is supported by ML, is gaining traction. In the reported quarter, Oracle added around 500 new Autonomous Database cloud customers. Management expects the count to grow more than twofold in fiscal second quarter. This is expected to be a key catalyst.

Oracle notes that it will roll out new Autonomous Cloud Services at its upcoming OpenWorld conference, with an aim to enhance Autonomous Database offering.

The company is making every effort to enhance functionalities of cloud-based applications, which is encouraging adoption. Moreover, the company is strategically expanding Autonomous Database portfolio by incorporating robust ML and AI capabilities.

These initiatives are expected to provide the company an edge in the Database-as-a-Service market and reinforce its competitive position against Amazon Web Services.

CEO Mark Hurd’s Medical Leave

Oracle announced that company’s CEO Mark V. Hurd “will take a leave of absence for health related reasons.”

Notably, Oracle has a co-CEO framework. During Hurd’s absence, company’s Chief Technology Officer and founder Larry Ellison, and co-CEO Safra Catz will take over Hurd's responsibilities.

The company hasn’t divulged details on the tenure of the leave.

Operating Details

Non-GAAP operating expenses, as a percentage of revenues, contracted 80 bps to 58.3%.

Non-GAAP operating income during the reported quarter was $3.84 billion, up 2.2% year over year.

Non-GAAP operating margin expanded 100 bps year over year and came in at 42%.

Balance Sheet & Cash Flow

As of Aug 31, 2019, Oracle had cash & cash equivalents, and marketable securities of $35.7 billion, down from $37.83 billion sequentially.

Operating cash flow for 12 months ended Aug 31, 2019 was $13.83 billion while free cash flow was $12.17 billion.

Share Repurchases & Dividends

Oracle repurchased shares worth approximately $5 billion and paid out dividends worth approximately $795 million during the reported quarter.

Oracle announced an increase of $15 billion in authorization for share buybacks.

The company declared a quarterly dividend of 24 cents per share, payable on Oct 24, 2019, to shareholders as on Oct 10, 2019.

Zacks Rank & Stocks to Consider

Currently, Oracle carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the broader technology sector are LogMeIn LOGM, Anixter International AXE and Perficient PRFT, each flaunting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for LogMeIn, Anixter and Perficient is currently pegged at 5%, 8% and 10.75%, respectively.

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