Oracle and the Future
Vishal is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Oracle Corp (NASDAQ: ORCL) a major player in the IT industry that offers an optimized and fully integrated stack of business hardware and software systems, had recently reported its second quarter earnings and has performed well, exceeding analysts’ expectations. With revenue from new software license and cloud subscription growing in the double digits, the company is all set to deliver robust earnings in the future.
Oracle of the Software Industry
Impressively the company reported a year-over-year increase in revenue of 3%, reaching $9.1 billion, beating the analyst’s expectation of $9.02 billion. Oracle’s net income also rose sharply by 18 percent to $2.6 billion; operating income was up 12% to $3.5 billion, and the operating margin was reported at 38%.
New software licenses and cloud software subscription revenues were reported up by 17% to $2.4 billion. The company has been aggressively building its position in the cloud-computing service. After acquiring cloud-based service providers RightNow Technologies in January and Taleo in April this year, the company recently announced the acquisition of Eloqua for approximately $871 million. Eloqua’s leading marketing automation cloud is expected to become the centerpiece of the Oracle Marketing Cloud, an important addition to the Oracle Customer Experience offering.
The acquisition of Sun Microsystems in 2010 is also proving to be a profitable one for Oracle with the revenue from hardware systems products reaching $734 million, a number that is expected to grow in the coming years.
Fiscal Cliff and the Dividend Rush
Oracle paid dividends for the next three quarters early, joining other companies that are accelerating dividend payouts. The move was to blunt the federal budget gridlock, aka the “fiscal cliff,” which could trigger sharply higher tax rates on the profits that firms return to ordinary investors. The software company has shelled out dividend totaling 18 cents a share on Dec. 21 for its second, third and fourth quarters in fiscal 2013. Oracle typically pays a quarterly dividend of six cents a share and was scheduled to pay its next one in February.
The major competitors of Oracle are International Business Machines and SAP AG (NYSE: SAP). One way of assessing the performance of these companies, is by comparing the trend of their net income per share. While Oracle showed a 20% rise in third quarter diluted EPS, IBM posted 4% growth and SAP had a 54% fall mainly due to its acquisition of ARIBA, for $4.3 billion. Therefore, it can be said that the financial performance of Oracle has been better than the comparable industry average.
Oracle Has SPOKEN
In my opinion, Oracle offers a very good long term investment opportunity with its inorganic expansion and growth prospects. However, in the short run the stock may not prove to be the best option because of the accelerated dividend payment. Overall the fundamentals of the company are sound, with a reasonable debt level, strong revenue growth and a sturdy balance sheet with decent cash flow from operations that strengthen the company’s image in the eyes of investors.
vishalkasat has no positions in the stocks mentioned above. The Motley Fool owns shares of International Business Machines and Oracle. Motley Fool newsletter services recommend International Business Machines. 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!