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Oracle (ORCL) Stock Spikes on Impressive Q3 Earnings and Cloud Revenues

Oracle Corporation ORCL is up 7% at $45.94 per share in midday trading on Thursday after posting impressive third quarter earnings yesterday, beating both the Zacks Consensus earnings and revenues estimates.  (To learn more about Oracle’s Q3 Earnings, check out this Zacks article: Oracle (ORCL) Beats on Q3 Earnings & Revenues: Stock Up)

The California-based company is one of the world’s leading suppliers of software for information management and is a new participant in the cloud software service, which is dominated by Amazon.com AMZN, while International Business Machines IBM, Microsoft MSFT and Google GOOGL are becoming notable competitors.

Oracle on Wednesday reported cloud software revenues of $1.1 billion, up 85% compared to the same period a year ago and total revenues were $9.3 billion, up 3%. In dollars, the cloud business grew by almost $500 million year-over-year while the total revenues grew $260 million.

The software company’s new cloud-computing service has been offsetting the revenue decline in the company’s long-time software-licensing operations. Revenues from new software licenses saw a $266 million decline, a 16% fall from a year earlier.

“Both our SaaS and PaaS business are doing great, I’m even more excited about our second generation IaaS business,” said Oracle co-founder and Chief Technology Officer, Larry Ellison. “Our new Gen2 IaaS is both faster and lower cost than Amazon Web Services.”

There is no doubt that Oracle has been investing money to ensure their products and services are in the best shape to compete against powerhouses like Amazon. The operating expenses in cloud software as a service and platform as a service went up by 25% while $4.5 billion were put into research and development for the reported quarter.

Despite the impressive growth in its cloud software sector, Oracle is still nowhere near Amazon, who dominates the cloud space owning 40% of the cloud market share. However, in February, Oracle altered the terms of its licensing policy to double the cost of running its software in Amazon’s cloud environment, reported by Market Realist.

With this move, Oracle took away one of Amazon’s cloud service’s main selling points, which is the cheaper route to the cloud and presented its own cloud platform as the cheaper option. 

Oracle reported earnings of $0.63 per share and revenues of $9.27 billion. The company’s Board of Directors declared a quarterly cash dividend of $0.19 per share of outstanding common stock, up 27% from the current quarterly dividend of $0.15.

Oracle expects the fourth quarter of 2017 to be another strong quarter. The cloud software revenue, including SaaS/PaaS and IaaS, with software license and software support is expected to grow 1-3%.

Oracle is currently a Zacks Rank #3 (Hold) with a Style Score “A” in Momentum.

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