A month has gone by since the last earnings report for Oracle (ORCL). Shares have added about 3% 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 Q1 Earnings In Line, Revenues Miss Estimates
Oracle reported first-quarter fiscal 2020 non-GAAP earnings of 81 cents per share, which matched the Zacks Consensus Estimate. However, non-GAAP revenues of $9.220 billion missed the Zacks Consensus Estimate of $9.289 billion.
Nonetheless, the bottom line improved 14.1% from the year-ago quarter (up 16% in constant currency). The top line also increased 0.2% year over year and 2% in cc, which was within management’s guidance of 1-3% in cc.
Top Line in Detail
Oracle reported total revenues (on a GAAP basis) of $9.218 billion, flat year over year (up 2% in cc).
Revenues by Offerings
Oracle’s top line benefited from the ongoing cloud-based momentum. Cloud services and license support revenues (74% of total revenues) for the reported quarter improved 3% year over year (up 4% in cc) to $6.805 billion.
Meanwhile, cloud license and on-premise license revenues (9% of total revenues) declined 6% year over year (down 6% in cc) to $812 million.
Hardware revenues (9% of total revenues) were $815 million, declining 10% (down 9% in cc) year over year.
Services revenues (8% of total revenues) decreased 3% to $786 million (down 2% in cc).
Revenues by Geography
Revenues from Americas (represented 55.9% of total revenues) were down 0.2% year over year to $5.150 billion.
Revenues from Europe/Middle East/Africa (27.7%) decreased 0.9% from the year-ago quarter to $2.553 billion.
However, revenues from Asia Pacific (16.4%) improved 4.1% from the year-ago quarter to $1.515 billion.
Break up of Cloud And License Revenues
Oracle reported total cloud and license revenues of $7.617 billion, which improved 2% from the year-ago quarter (up 3% in cc).
Applications revenues (represented 37% of total cloud and license revenues) came in at $2.821 billion, up 2% year over year (up 3% in cc).
Infrastructure related revenues (63%) came in at $4.796 billion, up 2% year over year (up 3% in cc).
Customer Expansion Bodes Well
Management announced that both NetSuite ERP and Fusion ERP businesses were up 33% in the fiscal first quarter. NetSuite ERP and Fusion ERP have customer strength of around 18,000 and 6,500, respectively. The expanding customer base is enabling the company to maintain its leading position in cloud ERP market.
Further, the next-generation autonomous database launched by Oracle, which is supported by ML, is gaining traction. In the reported quarter, Oracle added around 500 new Autonomous Database cloud customers. Management expects the count to grow more than twofold in fiscal second quarter. This is expected to be a key catalyst.
Oracle notes that it will roll out new Autonomous Cloud Services at its upcoming OpenWorld conference, with an aim to enhance Autonomous Database offering.
The company is making every effort to enhance functionalities of cloud-based applications, which is encouraging adoption. Moreover, the company is strategically expanding Autonomous Database portfolio by incorporating robust ML and AI capabilities.
These initiatives are expected to provide the company an edge in the Database-as-a-Service market and reinforce its competitive position against Amazon Web Services.
CEO Mark Hurd’s Medical Leave
Oracle announced that company’s CEO Mark V. Hurd “will take a leave of absence for health related reasons.”
Notably, Oracle has a co-CEO framework. During Hurd’s absence, company’s Chief Technology Officer and founder Larry Ellison, and co-CEO Safra Catz will take over Hurd's responsibilities.
The company hasn’t divulged details on the tenure of the leave.
Non-GAAP operating expenses, as a percentage of revenues, contracted 80 bps to 58.3%.
Non-GAAP operating income during the reported quarter was $3.84 billion, up 2.2% year over year.
Non-GAAP operating margin expanded 100 bps year over year and came in at 42%.
Balance Sheet & Cash Flow
As of Aug 31, 2019, Oracle had cash & cash equivalents, and marketable securities of $35.7 billion, down from $37.83 billion sequentially.
Operating cash flow for 12 months ended Aug 31, 2019 was $13.83 billion while free cash flow was $12.17 billion.
Share Repurchases & Dividends
Oracle repurchased shares worth approximately $5 billion and paid out dividends worth approximately $795 million during the reported quarter.
Oracle announced $15 billion increase in authorization for share buybacks.
The company declared a quarterly dividend of 24 cents per share, payable on Oct 24, 2019, to shareholders as on Oct 10, 2019.
For the fiscal second quarter, Oracle expects non-GAAP earnings per share to be 88-90 cents in cc (and 87-89 cents excluding currency impact).
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
At this time, Oracle has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
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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