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Oracle Delivers Best Earnings in Past Two Years Amidst Market Chaos
by Daniel Newman | March 12, 2020

The News: Oracle shares rose as much as 4% Thursday after hours, partly reversing an 11% drop during the day’s trading session, as the company reported fiscal third-quarter earnings that were better than analysts had expected.

Here’s how the company did:

  • Earnings: 97 cents per share, adjusted, vs. 96 cents per share as expected by analysts polled by Refinitiv.
  • Revenue: $9.80 billion, vs. $9.75 billion as expected by analysts polled by Refinitiv.

The company’s revenue grew 2% on an annualized basis in the quarter, which ended on February 29, according to a statement.

Analyst Take: Despite the almost surreal times we find ourselves in, both economic and global with the COVID-19 pandemic, Oracle delivered a very strong third quarter delivering the best revenue growth the company has seen in the past two years. This was matched by better than expected earnings. The market met these results with a positive bump after hours, but it will be interesting to see if Oracle, or any company, gets the real jolt that this type of result would give under more typical times when the VIX is at 20 rather than 70.  

Fusion ERP and Subscription Revenues Notable Successes in Q3

We have long been told that subscription/recurring revenue is the lifeblood of a stable business. Oracle was able to tout a very strong footprint in this space as the company shared that SaaS, IaaS and Software updates were at $6.9 Billion, which was up 5% YoY and accounted for 71% of the company’s overall revenue which also grew 2 points from the year before. This makes for a stable situation for the company in these rather uncertain economic times as the first nearly 3/4 of its revenues are defined heading into Q4 and the new fiscal. If the company can grow that number by another 2% in the new fiscal, that would only add strength to the company’s narrative. 

Overall app performance, which I think is a big part of the long term for a more “SaaS” cloud showed resiliency. The company’s GAAP revenue for applications came in at $2.8 Billion led by the company’s Fusion line, which saw growth in its portfolio from the upper twenties to upper thirties (%). Netsuite also saw solid growth over 20%, with the rest of the portfolio growing in the single digits. The growth of the entire portfolio is a good sign for this part of the business as the company seeks to be more competitive for market share with the likes of Salesforce, Adobe and Microsoft.  

Gen 2 Cloud and Autonomous Database a Big Deal for Oracle

When Larry Ellison presents, he tends to act as the pulse of the company with regards to technology. Ellison took the time to point out the importance of the company’s Autonomous Linux on the Oracle Gen 2 Cloud. 

“The Oracle Autonomous Database, the world’s only fully autonomous data management system, can automatically patch security vulnerabilities while running; it keeps your data safe,” said Oracle Chairman and CTO, Larry Ellison. “Oracle Autonomous Database is also both serverless and elastic. It’s the only database that can instantaneously scale itself to an optimal level of CPU and IO resources. You only pay for what you use. Security and economy are two fundamental reasons why thousands of customers are now using the revolutionary new Oracle Autonomous Database in our Generation 2 Public Cloud.”

In his comments, there were a few things that I think are really important to note.

  1. It’s Autonomous, meaning it can operate on its own and use ML to function more accurately and be more responsive.
  2. It’s serverless and elastic, meaning that it can perform tasks while running that most traditional database technologies are incapable of meaning server downtime for maintenance. And we all know bringing the system down for any reason, creates risk.
  3. It’s consumable. Many folks will point to the tough transition that Oracle has had moving from on-prem to cloud, but Ellision has been steadfast in the economics of the Oracle Cloud. Now he touts that the technology is at the cutting edge, while the price/value ratio is higher than the competition. This certainly will influence growth as customer realize benefits. 

For Oracle, I want to see more customer wins in the Gen 2 cloud and more discussion about customers and successes in the coming quarters. Especially wins that take place outside of the legacy Oracle customer base. 

Oh that Buyback

I couldn’t help but smile a bit on the boards overwhelming decision to approve a $15 Billion dollar stock buyback. With the recent pummeling that stocks have taken, we are going to see more and more of this as companies know their shares are on sale for now, but that won’t last as good companies will find their way back. 

Oracle Q4 Forward Guidance

The guidance for the company was on-par with what analysts were expecting, if not a bit conservative as Katz suggested a range of +/- 2%, which would put it slightly below or above the expected $11.31 billion for the quarter. The EPS at $1.24 was also a bit over the $1.23 expected by analysts meaning overall the quarter is setting up well enough. Given the current situation with COVID-19, it is hard to really know the exact economic impact that the company may face this quarter. Oracle has significant recurring revenue and many of its larger sales have longer tails so unless businesses start cancelling contracts in the wake of the pandemic, I don’t expect Oracle to be hit as hard as companies that have more direct exposure to Chinese supply chain. Having said that, it is hard to imagine that any company will go unscathed in the next round of quarterly earnings as we see the impact of COVID-19 take shape.

Overall Impressions of Oracle Earnings

We are living in unprecedented times and the markets are as unpredictable as ever before. For companies having to report right now it is wild because solid results like what Oracle posted today aren’t driving investor sentiment the way they once did. 

With that in mind, I’m encouraged by the company’s results. The growth in apps and the focus on the Generation 2 cloud are going to be important barometers for the company’s long term prospects. The next quarter will be an interesting bell weather and the world will be watching. Barring any greater setbacks than what we are already dealing with, I feel Oracle is making positive strides that should carry into its new fiscal year.

Futurum Research provides industry research and analysis. These columns are for educational purposes only and should not be considered in any way investment advice.

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Image: Wikipedia
Daniel Newman
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