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Oracle (ORCL) Up 14.5% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Oracle (ORCL). Shares have added about 14.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Oracle due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Oracle Q4 Earnings and Revenues Top Estimates

Oracle reported fourth-quarter fiscal 2021 non-GAAP earnings of $1.54 per share, beating the Zacks Consensus Estimate by 17.6%. Further, the bottom line was up 29% from the year-ago quarter’s levels (up 22% at constant currency or cc). Management had guided non-GAAP earnings per share between $1.28 and $1.32 at USD as well as $1.20 and $1.24 at cc.

Revenues increased 8% (up 4% at cc) year over year to $11.227 billion, outpacing the Zacks Consensus Estimate by 1.4%. The top-line performance was mainly driven by strength in cloud business.

For fourth-quarter fiscal 2021, Oracle had anticipated total revenue growth rate on a year-over-year basis in the range of 5-7% at USD and 1-3% at cc.

Revenues by Offerings

Oracle’s Cloud services and license support revenues (nearly 66% of total revenues) in the reported quarter increased 8% year over year (up 4% at cc) to $7.389 billion. The upside can be attributed to continued strength in Fusion, Autonomous Database and Gen 2 Oracle Cloud Infrastructure (OCI) services.

Break up of Cloud services and license support revenues

Applications revenues (contributed 41% to total cloud services and license support revenues) amounted to $3.043 billion, up 11% year over year (up 7% at cc).

Infrastructure related revenues (59%) were $4.346 billion, up 6% on a year-over-year basis (up 2% at cc).

Meanwhile, Cloud license and on-premise license revenues (19% of total revenues) increased 9% year over year (up 5% at cc) to $2.144 billion.

Hardware revenues (8% of total revenues) were $882 million, down 2% (down 6% at cc) on a year-over-year basis.

Services revenues (7% of total revenues) rose 11% (up 6% at cc) to $812 million.

Revenues by Geography

Revenues from Americas (representing 54.1% of total revenues) increased 5.7% year over year to $6.076 billion.

Revenues from Europe/Middle East/Africa (29.6%) climbed 12.6% from the year-ago quarter’s figure to $3.324 billion.

Revenues from Asia Pacific (16.3%) advanced 4.9% from the year-ago quarter level to $1.827 billion.

Expanding Clientele Remains Noteworthy

Strategic back-office cloud applications business surged 32% (at cc) with annualized revenues of $4.4 billion. Management announced that Fusion HCM, NetSuite ERP and Fusion ERP businesses were up 30%, 22% and 42%, respectively, in fiscal fourth quarter.

Markedly, autonomous database consumption revenues improved 56% and consumption revenues for Oracle Cloud Infrastructure (OCI) services soared 103%. Meanwhile, cloud customer consumption revenues increased 50% year over year. Also, Gen2 Cloud plus Autonomous Database revenues soared more than 100%.

Oracle is witnessing robust growth in Cloud HCM, which is increasingly being purchased as part of the company’s ERP cloud application suite. Further, the migration of several large-scale SAP customers to Fusion ERP cloud and Fusion HCM remains a tailwind.

Growing clientele is aiding the company to maintain its leading position in cloud ERP domain. Management is optimistic on latest Fusion Cloud ERP and Fusion Cloud HCM deal wins from companies including BNY Mellon, Brinker International, Durr Group, Sumitomo Mitsui Financial Group, Western Digital, Inova and Shinsei Bank.

The next-generation autonomous database launched by Oracle, supported by ML, is witnessing steady traction. New product introductions, including new OCI managed services, are likely to boost growth in this category. Notably, autonomous database in Gen2 public cloud infrastructure is witnessing healthy uptake.

Oracle’s latest Exadata Cloud@Customer service offering is gaining traction among on-premise customers. Latest wins include Canada-based Laval University, Telefonica and Telekom Slovenije.

Noteworthy deal wins for OCI during the reported quarter includes Bechtel, Carrefour and Israel-based Terminal X.

Oracle is making every effort to enhance functionalities of cloud-based applications, which is encouraging adoption.

These initiatives are expected to provide the company an edge in the cloud space and reinforce its competitive position against the likes of Amazon’s Amazon Web Services and Microsoft’s Azure platform and Alphabet’s Google Cloud.

Operating Details

Non-GAAP total operating expenses increased 9% year over year (up 6% at cc) to $5.778 billion. As a percentage of non-GAAP revenues, the figure expanded 70 basis points (bps) to 51.5%.

Non-GAAP operating income during the reported quarter was $5.449 billion, up 6% year over year (up 1% at cc).

Non-GAAP operating margin contracted 71 bps (contracted 109 bps at cc) on a year-over-year basis to 49%.

Balance Sheet & Cash Flow

As of May 31, 2021, Oracle had cash & cash equivalents, and marketable securities of $46.554 billion compared with $35.864 billion as of Feb 28, 2021.

Operating cash flow and free cash flow for the 12 months ended May 31, 2021 amounted to $15.887 billion and $13.752 billion, respectively.

Share Repurchases & Dividends

Oracle repurchased 107 million shares worth approximately $8 billion during the fiscal fourth quarter.

Over the 12-month period ended May 31, 2021, the company repurchased 329 million shares worth nearly $21 billion and paid out dividends worth $3.063 billion during the same time frame.

Q1 Guidance

For first-quarter fiscal 2022, Oracle anticipates total revenue growth rate on a year-over-year basis in the range of 3-5% at USD and 1-3% at cc.

Oracle expects non-GAAP earnings per share in the range of 94-98 cents at USD, and 91-95 cents at cc. The bottom line is likely to be affected by higher investment in cloud platform, noted Oracle. The company plans to invest nearly $4 billion toward cloud capex spend in fiscal 2022.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -6.58% due to these changes.

VGM Scores

At this time, Oracle has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Oracle has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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