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Oracle Delivers Solid Q4 Despite Ongoing Covid-19 Woes
by Daniel Newman | June 16, 2020

The News: Oracle shares fell as much as 5% in extended trading on Tuesday after the company reported fiscal fourth-quarter results that missed analysts’ revenue estimates. Revenue was down 6% from a year ago in the quarter, which ended on May 31, according to a statement.

Here’s how the company did:

  • Earnings: $1.20 per share, adjusted
  • Revenue: $10.44 billion

The company had said in March that it was expecting roughly flat revenue in the quarter. Analysts surveyed by Refinitiv had expected $1.15 in adjusted earnings per share on $10.65 billion in revenue. Comparing the results with analysts’ estimates is not straightforward because the coronavirus impacted Oracle’s operations in the quarter. Read the full news on CNBC.

Analyst Take: When Covid-19 hit, in a MarketWatch piece, I pegged Oracle as a safe play for investors and as a company that would weather the storm well. It wasn’t a crazy prognostication, it was a safe bet. The company has nearly 74% of its revenue in recurring licensing and subscription deals. This basically meant, so long as the clients didn’t go bankrupt, Oracle would continue to see revenues from nearly 3/4 of its customers.

So, this begs a question of whether or not Oracle’s 6% YoY decline in revenue is something that the market should worry about?In short, I stand by my convictions that Oracle’s business is stable. It is also worth reiterating that the company did beat its EPS expectations, so despite the decline in revenue it also operated well and exceed margin targets. Let’s unpack this a bit further.

Breaking Down the Businesses 

Oracle’s business breaks down into four categories. The two biggest buckets saw mixed results, with the largest seeing a slight uptick and the other seeing a significant growth. The portfolio is rounded out by its hardware and services business.

Oracle’s largest category is its cloud services and license support. For the quarter, this group delivered $6.85 billion in revenue, growing 1% on an annualized basis coming in just below the $6.90 billion consensus among analysts polled by FactSet.

Revenue from its cloud and on-premises licenses came to $1.96 billion, which was down materially at 22%, also coming in less than the FactSet consensus of $2.14 billion.

The remainder of the revenue came from Hardware and Services at $901 million and $735 million, which were off 9% and 11% respectively YoY.

While the declines, especially in the Cloud Infrastructure business could be seen as a bit of a setback, I would speculate that this is more driven by the global pandemic and stalled deal flow for new customers and expanded contracts–especially in cloud. I expect in the coming 2 quarters, presuming no major 2nd wave or shut downs, that Oracle will be able to reestablish momentum and continue deals that were paused do to economic and health concerns. This will be an area to watch for sure, as the Oracle Cloud business is an area that I have long touted as critical for the companies long term growth.

Oracle’s Q4 Bright Spots: Zoom Zoom with SaaS 

For its Q4, the company shared a few bright spots.

 Q4 FY2020 Fusion ERP cloud revenue, up 32% year-over-year (YoY)
 Q4 FY2020 Fusion HCM cloud revenue, up 27% YoY
 Q4 FY2020 EPS of $0.99 and non-GAAP EPS of $1.20, up 3% YoY and 5% in constant currency
 FY2020 EPS of $3.08 and non-GAAP EPS of $3.85, up 9% YoY and 11% in constant currency

The EPS numbers are always good and something to keep an eye on, but the impressive growth of its Fusion ERP and HCM lines showed that the company was able to keep momentum with some of its key SaaS offerings. These types of deals were much more achievable during the Covid-19 shutdowns as SaaS could be deployed without personnel going on prem. I have always kept a close watch on this part of Oracle’s business as I have worried some of its legacy solutions will run into greater competition from Microsoft, AWS, and others.

The company also offered a couple of important customer wins in the hot work from home technology space. Zoom Video Conferencing and 8×8 both made significant commitments to move their software to Oracle Cloud. These high visibility wins are important for Oracle, which has been seen as a distant competitor to the large hyperscalers. More of these types of wins could lead to more opportunities and conversions. Especially, based upon Larry Ellison’s continuous touting of better economics with Oracle.

A Look ahead for Oracle 

For the upcoming first quarter of its new fiscal year, CEO Safra Catz expects adjusted fiscal first-quarter earnings of 84 cents to 88 cents a share on revenue with revenue either increasing or declining by 1%, meaning $9.13 billion to $9.31 billion. Analysts surveyed by FactSet expect earnings of 85 cents a share on revenue of $9.05 billion.

This indicates the company is bullish on meeting expectations and could find itself with not only another earnings beat, but a revenue beat as well. The continued motion out of pandemic lock-down will play a key role here.

Overall Impressions of Oracle’s Q4 Earnings

Oracle is among the first tech companies that is reporting a full quarter impacted by the Covid-19 pandemic. If the next wave of tech is this good or better, I think the market will be quite pleased.

Of course, in tech, often big double digit growth is the only thing that satisfies the street, but Oracle is a large and steady ship. It’s growth tends to be more single digit, but the important thing is that it returns to growth overall quickly as we put Covid-19 futher into the rearview.

In the quarters to come, that will be key. Growth and growth in the right areas. Cloud and SaaS specifically. For Oracle, those areas are the future, and the more strength it can show in those areas, coupled with its large recurring customer base, the better the long term road will look for Oracle–Having said that, the company is looking like it will emerge from Covid-19 in pretty good shape.

Read more analysis from Futurum Research:

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Compulsory Remote Work And The Future Of Work–The New Normal?

Image Credit: Oracle

About the Author

Daniel Newman is the Principal Analyst of Futurum Research and the CEO of Broadsuite Media Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise. Read Full Bio