Miracles of Oracle

Nitesh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Oracle (NYSE: ORCL), manufacturer of database and middleware software, ended up managing its financials well, as it is on track to bring in more than $1 billion revenue this year.  It remarkably reported a profit at 64 cents per share and adjusted revenue of $9.11 billion for its second quarter. The two recent acquisitions by Oracle of Right Now Technologies for $1.5 billion and Taleo Corporation for $1.9 billion this year proved to be a prudent investment decision.

Number Game

Oracle’s operating margin grew to 47 % in the second quarter from 44.6% a year ago. Net income for the second quarter ending Nov 30, rose by 18% to $2.58 billion i.e. 53 cents a share. Similarly, it was $2.19 billion, or 43 cents, a year earlier. Increase in Revenue of Oracle was driven by a 10% increase in software revenues, making it to $6.65 billion. New software licenses and cloudware subscription revenues rose by 17% to $2.39 billion. The strong performance of the software business was offset by a 16% decline in hardware revenues, coming in at $1.32 billion.

Oracle's $10 billion share repurchase plan boosted its Earnings per share by 23%, coming in at $0.53 per share. Non-GAAP earnings per share rose by 18%, at $0.64 per share. Further Operating expenses were less compared with last year. All this results depict a robust performance of Oracle for this quarter.

Future Ahead

It is forecasted that for the third quarter which will be ending in February, adjusted revenue will increase by 1 % to 5% and profit will be 64 cents to 68 cents a share. New license and subscription sales may increase by 3 % to 13 % in the third quarter, quantifying around at $2.56 billion. Oracle also plans to ship a new version of its database called 12c for running cloud computing applications next year. It also expects to earn around $0.51-$0.55 per diluted share. Further on a non-GAAP basis, earnings could come in between $0.64 and $0.68 per share. The rapid growth of its products like Exadata and the SPARC T4 has consistently improved quarter over quarter, and hence is expected to add in the coming years as well.

Battle with others

Oracle is competing with SAP (NYSE: SAP) and Microsoft (NASDAQ: MSFT) in the cloud software market as customers replace aging software and servers with updated Web- based products.

SAP enables corporations to enhance their business and information technology strategies, with business application known as SAP. It recently introduced the latest version of SAP Afaria, the industry leading mobile device management solution. SAP Afaria aims to remove complexities and further support the growing mobile workforce by ensuring that all data stored and transmitted via mobile device is protected and secure. Its most recent quarterly sales were $14.23 billion and net income was $3.44 billion. SAP’s revenues have increased sustainable over the period of the last ten years. The growth in revenue exceeds the industry average of 1.4% and hence is matter of concern for oracle.

Microsoft (NASDAQ: MSFT) develops, licenses, and supports software products, expects its earnings to grow by an average of 8.9% over the next five years. In July, Microsoft posted its first quarterly loss results in its history. The loss was purely due to the $6.2 billion goodwill impairment relating back to its acquisition of aQuantive in 2007. But since then, Microsoft has grown its market share undoubtedly.  For the fiscal year ended 30 November it posted the revenue amount of $72.36 billion, EBITDA of $28.79 billion and diluted EPS of $1.85. Microsoft released its newest operating system, Windows 8, in October. Windows 8 runs on desktops and laptops but is also designed to run on tablets, including Microsoft's own Surface. The robust performance by Microsoft is worth considering.

Bottom Line

Since last decade, Oracle has spent more than $50 billion on more than 80 deals, therefore fuelling an expansion in sales and earnings. Oracle is focused on its cloud business & the company is on track to report full year targeted revenues of $37-$38 billion. With all its acquisitions of RightNow, Endeca, Taleo etc. the company enhances its presence in big data, data analytics, cloud-based solutions and human resources. As different businesses continue to strive for growth, it will place more demand on IT services and hence Oracle has a ready customer market in future as well. With all the strong fundamentals of company the bottom line is to pick up the stock for long term and add some returns to the portfolio.

Niteshag has no positions in the stocks mentioned above. The Motley Fool owns shares of Microsoft and Oracle. Motley Fool newsletter services recommend Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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