Why Is Oracle (ORCL) Up 10.6% Since Last Earnings Report?
It has been about a month since the last earnings report for Oracle (ORCL). Shares have added about 10.6% 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 drivers.
Oracle Q1 Earnings Beat Estimates, Revenues Up Y/Y
Oracle reported first-quarter fiscal 2022 non-GAAP earnings of $1.03 per share, beating the Zacks Consensus Estimate by 6.2%. The bottom line was up 11% from the year-ago quarter’s levels (up 9% at constant currency or cc). Management had guided non-GAAP earnings per share in the range of 94-98 cents at USD and 91-95 cents at cc.
Revenues increased 4% (up 2% at cc) year over year to $9.728 billion. The top-line performance was mainly driven by strength in cloud business. However, revenues missed the Zacks Consensus Estimate by 0.5%.
For the fiscal first quarter, Oracle had anticipated total revenue growth rate — on a year-over-year basis — in the range of 3-5% at USD and 1-3% at cc.
Revenues by Offerings
Oracle’s Cloud services and license support revenues (nearly 76% of total revenues) in the reported quarter increased 6% year over year (up 5% at cc) to $7.371 billion. The upside can be attributed to continued strength in the Fusion, Autonomous Database and OCI services.
Management noted that the company’s IaaS and SaaS business now account 25% of total quarterly revenues with an annual run rate of $10 billion.
Break up of Cloud Services and License Support Revenues
Applications revenues (contributed 41% to total cloud services and license support revenues) amounted to $3.041 billion, up 8% year over year (up 7% at cc).
Infrastructure-related revenues (59%) were $4.33 billion, up 5% on a year-over-year basis (up 3% at cc).
Meanwhile, Cloud license and on-premise license revenues (8% of total revenues) declined 8% year over year (down 9% at cc) to $813 million.
Hardware revenues (8% of total revenues) were $763 million, down 6% (down 7% at cc) on a year-over-year basis.
Services revenues (8% of total revenues) rose 8% (up 7% at cc) to $781 million.
Revenues by Geography
Revenues from Americas (representing 54.7% of total revenues) increased 5% year over year to $5.321 billion.
Revenues from Europe/Middle East/Africa (28.6%) moved up 1.7% from the year-ago quarter’s figure to $2.784 billion.
Revenues from Asia Pacific (16.7%) advanced 4% from the year-ago quarter’s level to $1.623 billion.
Expanding Clientele Remains Noteworthy
Strategic back-office cloud applications business surged 25% (at cc). Management announced that NetSuite ERP and Fusion ERP cloud revenues were up 28% and 32% respectively, in the fiscal first quarter.
Consumption revenues for OCI services, which includes Autonomous Database soared 80% at cc. Cloud customer consumption revenues increased 44% year over year.
Database subscription revenues (which includes database support and database cloud services) rose 6% year over year (up 5% at cc).
Growing clientele is helping the company to maintain its leading position in cloud ERP domain. The migration of several large-scale SAP customers to Fusion ERP cloud and Fusion HCM remains a tailwind.
Management is optimistic regarding the latest Oracle Fusion Cloud ERP and EPM as well as Fusion Cloud HCM deal wins from companies including Humana, Hutchinson, ITV, KCB Group, Acer and AirAsia India.
The next-generation autonomous database launched by Oracle, supported by ML, is witnessing steady traction. New product introductions, including new OCI managed services, are likely to boost growth in this category. Notably, autonomous database in Gen2 public cloud infrastructure is witnessing a healthy uptake.
Oracle’s latest Exadata Cloud@Customer service offering is gaining traction among on-premise customers. Latest wins include Deutsche Bank, Macif insurance, New Jersey Office of Information Technology and Electronic Transaction Consultants (“ETC”).
Other noteworthy deal wins for OCI during the reported quarter include Telefonica Brasil, Pernod Ricard, Crunch Mediaworks, Polpharma and Netherlands-based Liberty Global.
Non-GAAP total operating expenses increased 4% year over year (up 3% at cc) to $5.394 billion. As a percentage of non-GAAP revenues, the figure is unchanged at 55.4% from the prior-year quarter’s levels.
Non-GAAP operating income during the reported quarter was $4.334 billion, up 4% year over year (up 2% at cc).
Non-GAAP operating margin contracted 5 basis points (bps) on a year-over-year basis to 45%.
Balance Sheet & Cash Flow
As of Aug 31, 2021, Oracle had cash & cash equivalents and marketable securities of $39.31 billion compared with $46.554 billion as of May 31, 2021.
Operating cash flow and free cash flow for the trailing 12 months ended Aug 31, 2021 amounted to $15.325 billion and $12.564 billion, respectively.
Oracle repurchased 94 million shares worth approximately $8 billion during the fiscal first quarter.
For second-quarter fiscal 2022, Oracle anticipates total revenue growth rate on a year-over-year basis in the range of 3-5% at USD and at cc.
Cloud services and license support revenues are projected to grow more than 5% in both USD and at cc for the current quarter.
Oracle expects non-GAAP earnings per share growth rate on a year-over-year basis in the range of 2-6% at USD and at cc and be in the band of $1.09-$1.13 per share.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month.
At this time, Oracle has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. 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 #4 (Sell). We expect a below average return from the stock in the next few months.
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