Oracle (ORCL) Up 9.9% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Oracle (ORCL). Shares have added about 9.9% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Oracle due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Oracle Q4 Earnings Beat Estimates, Revenues Miss
Oracle reported fourth-quarter fiscal 2020 non-GAAP earnings of $1.20 per share, beating the Zacks Consensus Estimate by 5.26%. Further, the bottom line was up 3% from the year-ago quarter (up 5% in constant currency or cc).
However, non-GAAP revenues declined 6% (down 4% in cc) year over year to $10.441 billion, missing the Zacks Consensus Estimate by 1.64%.
Top Line in Detail
Oracle reported total revenues (on a GAAP basis) of $10.44 billion, down 6% (down 4% in cc) year over year, primarily led by decline in license revenues.
Revenues by Offerings
Oracle’s top line benefited from the ongoing cloud-based momentum. Cloud services and license support revenues (66% of total revenues) in the reported quarter rose 1% year over year (up 3% in cc) to $6.845 billion.
Break up of Cloud services and license support Revenues
Applications revenues (contributed 40.2% to total cloud services and license support revenues) amounted to $2.749 billion, up 1% year over year (up 3% in cc).
Infrastructure related revenues (59.8%) were $4.096 billion, flat on a year-over-year basis (up 3% in cc).
Meanwhile, Cloud license and on-premise license revenues (19%) declined 22% year over year (down 21% in cc) to $1.959 billion.
Hardware revenues (8%) were $901 million, down 9% (down 7% in cc) year over year.
Services revenues (7%) declined 11% (down 8% in cc) to $735 million.
Revenues by Geography
Revenues from Americas (representing 55% of total revenues) declined 7.1% year over year to $5.746 billion.
Revenues from Europe/Middle East/Africa (28%) declined 5.7% from the year-ago quarter’s figure to $2.952 billion.
Revenues from Asia Pacific (17%) declined 4.3% from the year-ago quarter level to $1.742 billion.
Customer Expansion Bodes Well
Management announced that Fusion HCM, NetSuite ERP and Fusion ERP businesses were up 29%, 25% and 35% in the fiscal fourth quarter, respectively. NetSuite ERP and Fusion ERP have customer strength of around 22,000 and 7,100, respectively.
Additionally, the company is witnessing strong growth in Cloud HCM, which is increasingly being purchased as part of the company’s ERP cloud application suite. Markedly, Goldman Sachs implemented and went live with Oracle Cloud HCM in the recent past. Further, the migration of several midsized SAP customers to Fusion ERP and Fusion HCM is an upside.
Expanding clientele is enabling the company to maintain leading position in cloud ERP market. Management is optimistic on latest ERP deal wins from companies including JPMorgan Chase, Mount Sinai Hospital and the Icahn School of Medicine, KPM Netherlands, and Westpac New Zealand.
Key HCM wins include Kroger, Malaysia-based Petronas, Norfolk County Council, the United Nations, MD Anderson Cancer Center and the University of Texas.
Moreover, the next-generation autonomous database launched by Oracle, supported by ML, is gaining traction. In the reported quarter, Oracle added new Autonomous Database cloud customers. New product introductions are likely to boost growth further in this category. Markedly, autonomous database in Gen2 public cloud infrastructure is witnessing rapid adoption.
Oracle’s latest Exadata Cloud@Customer service offering is also gaining traction among on-premise customers.
The company is making every effort to enhance functionalities of cloud-based applications, which is encouraging adoption. 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.
Markedly, during the quarter under review, Zoom Video Communications and 8x8 selected Oracle Cloud Infrastructure (OCI) services to enhance video meeting solutions in a secure manner amid explosive growth in user base.
Other key deal wins include Omani Information Technology and Communications Group, Jefferies, Saudi Arabia-based General Authority of Civil Aviation, Quest Diagnostics, Canada-based TD Bank Group, Verizon Business Group, Cybereason, Synacor, India-based Manappuram Finance and Altair.
Oracle also benefited from adoption of customer engagement platforms. During fiscal fourth quarter, American Electric Power selected Oracle Utilities Opower solution to provide customers with personalized energy management programs.
Non-GAAP operating expenses fell 10% year over year (down 8% in cc) to $5.299 billion.
Non-GAAP operating income during the reported quarter was $5.142 billion, down 2% year over year (almost flat at cc).
Non-GAAP operating margin expanded 200 basis points (bps) on a year-over-year basis to 49%.
Balance Sheet & Cash Flow
As of May 21, 2020, Oracle had cash & cash equivalents, and marketable securities of $ 43.057 billion, up from $25.858 billion as of Feb 29, 2020.
The company issued debt of $20 billion in the reported quarter, which increased interest expenses, and lowered earnings per share by 3 cents.
Operating cash flow and free cash flow for the 12 months ended May 21, 2020 came in at $13.139 billion and $11.575 billion, respectively.
Share Repurchases & Dividends
Oracle repurchased 107 million shares worth approximately $5.2 billion during the fiscal fourth quarter and paid out dividends worth $3.07 billion during the 12 months ended May 21, 2020.
Over the past 12 months, the company has repurchased 361 million shares worth $19.2 billion. Over the last 10 years, Oracle has reduced the shares outstanding by nearly 40%.
On Jun 16, 2020, the company declared a quarterly dividend of 24 cents per share, payable on Jul 15, 2020, to shareholders as on Jul 28, 2020.
For first-quarter fiscal 2021, Oracle anticipates total revenue growth rate on a year-over-year basis in the range of (1%) to 1% at USD and 0-2% at cc.
Oracle expects non-GAAP earnings per share in the range of 85-89 cents. The Zacks Consensus Estimate for the same is pegged at 85 cents per share.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended upward during the past month.
Currently, Oracle has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Oracle has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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