The News: Oracle shares rose 11% in extended trading on Thursday after the database software maker reported fiscal second-quarter earnings that exceeded analysts’ estimates.
Here’s how the company did:
- Earnings: $1.21 per share, adjusted, vs. $1.11 per share as expected by analysts, according to Refinitiv.
- Revenue: $10.36 billion vs. $10.21 billion as expected by analysts, according to Refinitiv.
Revenue increased 6% year over year in the quarter, which ended Nov. 30, according to a statement. Read the full news story on CNBC.
Analyst Take: Oracle has been a darling for established high-tech companies that also provide investors with a dividend. The company has seen its stock surge more than 40% this year, and with this strong quarter performance it ticked up to near $100.00 after hours on a strong performance both on both the top and bottom line.
The company has continued to back shareholders, while performing and delivering growth, which is a nice recipe for steady returns. This year the company not only upped its dividends, but also added increased share buybacks this quarter, all the while maintaining its trend of stable revenue growth, and delivering the market with a first glance at its robust and now multi-billion dollar per quarter cloud business. While I know it has become somewhat cliche to hate on Oracle, there is a lot to like about that.
Note: Oracle did see its Income for the quarter swing to a loss based upon a one-time payment related to former CEO Mark Hurd’s arrival at Oracle in 2010. This one-time payment had to be made and was recorded in this quarter, impacting the GAAP earnings.
Breaking Down the Business Segments
Oracle’s business breaks down into four categories. The company’s two biggest revenue buckets, Cloud services, and license support, representing 73% of revenue this quarter and cloud license and on-premise license representing 12% of the company’s revenue, the cloud licensing saw growth this quarter while premise based contracted somewhat considerably. The other two groups, which are both sub 10% of revenue, saw mixed results, with hardware declining 9% while services were up 7% YoY.
Despite the pullback from some of the smaller segments, seeing 85% of its revenue from cloud and services helped propel Oracle to another quarter of mid-single-digit growth. The cloud services and license support segment delivered $7.554 billion in revenue, once again growing 6% on an annualized basis coming in slightly above the $7.54 billion consensus among analysts polled by FactSet.
Revenue from its cloud and on-premises licenses came in at $1.237 billion for the quarter, which represented a decline versus last year’s $1.07 billion in the same quarter.
Oracle SaaS and Cloud Continue to Deliver Strong Growth Passing $2.7 Billion
Oracle once again brought a more open and transparent outlook on its Cloud business announcing a 22% revenue growth YoY for its overall cloud business, now usurping $2.7 billion for the quarter. Make no mistake, the Oracle Cloud business is gaining momentum and each quarter is showing more strength as a contender to be the third cloud after AWS and Azure. While Google may hotly contest this, Oracle is competing on revenue, and unlike Google, its cloud business is profitable.
Another continued bright spot for Oracle has come from its cloud applications businesses, which continued their rapid revenue growth with Fusion ERP up 35% and NetSuite ERP up 29%, a continuation of 32% and 28% from the previous providing confidence that momentum is behind continued growth for these cloud-based services. This growth adds to the more than 8,500 Fusion ERP and 28,000 NetSuite ERP customers in the Oracle Cloud, which was new data reported in this quarter’s earnings release.
Significant Customer Wins in Q1 for Oracle:
In Q4 the company saw growing adoption of its SaaS portfolio, including Netsuite, Fusion Apps, and Oracle Cloud Infrastructure, including Cloud@Customer. I continue to closely track the quarterly wins that are reported by Oracle and have been impressed by the hybrid cloud wins as Cloud@Customer is gaining momentum with some of the biggest companies in financial services like Deutsche Bank (Below).
A few of the highlighted customer wins from its earnings release: (abbreviated)
- Bayer: with the support of an outsourcing partner, is migrating several hundred of their Oracle enterprise workloads onto Oracle Exadata Cloud@Customer. This strategy is being rolled out globally in APAC, the US, and Europe.
- Carnival: With a portfolio of brands featuring Carnival Cruise Line, Princess Cruises, Holland America Line, Costa Cruises, AIDA Cruises, P&O Cruises, and others. The company selected Oracle Fusion Cloud EPM for two of their brands, with the potential to expand to their other brands.
- FedEx: Provider of a broad portfolio of transportation, ecommerce, and business services, FedEx has been using Oracle Fusion Cloud ERP, and this quarter they expanded the footprint to numerous additional countries. The effort is part of a global initiative to replace current on-premises ERP systems with Oracle Fusion Cloud ERP.
- Mayo Clinic: In March 2021, Mayo Clinic chose Oracle Fusion Cloud EPM for their budgeting functions. Now the healthcare organization is adding Oracle Fusion Cloud ERP and HCM to replace their on-premises systems with one integrated cloud solution that will help them streamline and automate many of their administrative tools.
- Panasonic Corporation: Panasonic is choosing Oracle Fusion Cloud ERP and EPM to help Panasonic as they re-engineer business processes, spur data-driven management, and achieve more agile and sophisticated financial reporting, planning, and analysis.
- Volkswagen Financial Services: A 100% subsidiary of Volkswagen AG, Volkswagen Financial Services AG recently migrated several hundred critical Oracle enterprise workloads onto Oracle Exadata Cloud@Customer. The group aims to ensure compliance with banking regulations, and increase performance without any code changes,
Each quarter I review the various customer wins and find value in learning details of Oracle’s wins across its portfolio and providing concrete examples of what solutions across its portfolio are being adopted. Customer proof serves as an indicator of a company’s trajectory and market uptake, especially as Oracle seeks to prove itself as an impact player in the cloud.
Overall Impressions of Oracle’s Earnings (Q2 FY 2022)
Oracle’s 6% growth this quarter marks a slight improvement from last quarter’s 4% growth, marking a steady climb in revenue. I continue to see a more bullish outlook as material growth is coming from its SaaS and Cloud portfolio, and this quarter’s update should encourage investors and customers alike as Oracle’s cloud investments are starting to be more visible in the earnings results.
For its fiscal ’22 Q2 guidance, the company said it is expecting fiscal first-quarter adjusted earnings of $1.14-$1.18 per share and the equivalent of 3% – 5% revenue growth on $10.56 billion in revenue. I believe this guidance is conservative but in the target range as recent guidance has been consistently in range. This quarter the company came in just above last quarter’s guidance. I also expect the cloud and SaaS growth areas like Fusion and Netsuite and Gen2 Cloud + autonomous database to help carry the growth number for Q2 once again–Which is what Oracle and its shareholders should be hoping to see.
As we are continuing to get more visibility into the company’s cloud business growth including clearer insights on revenue and customer growth, the path to a more robust business only becomes more evident. Remember, this is a company that operates with around 70% of its revenue being recurring in nature. Add in higher yields, more buybacks, and continued upward momentum, and there isn’t much not to like about Oracle’s prospects.
Futurum Research provides industry research and analysis. These columns are for educational purposes only and should not be considered in any way investment advice. Neither the Author or Futurum Research holds any positions in any companies mentioned in this article.
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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