It has been about a month since the last earnings report for Oracle (ORCL). Shares have added about 6.7% 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 its most recent earnings report in order to get a better handle on the important catalysts.
Oracle Q1 Earnings & Revenues Surpass Estimates
Oracle reported first-quarter fiscal 2021 non-GAAP earnings of 93 cents per share, beating the Zacks Consensus Estimate by 8.14%. Further, the bottom line was up 15% from the year-ago quarter (up 14% at constant currency or cc). Further, the reported figure surpassed the higher end of management’s guided range of 85-89 cents.
Moreover, non-GAAP revenues improved 2% (up 2% at cc) year over year to $9.368 billion, outpacing the Zacks Consensus Estimate by 2.39%. For first-quarter fiscal 2021, Oracle had anticipated total revenue growth rate on a year-over-year basis in the range of (1%) to 1% at USD and 0-2% at cc.
Top Line in Detail
Oracle reported total revenues (on a GAAP basis) of $9.367 billion, up 2% (up 2% at cc) year over year, primarily led by improvement in cloud business.
Revenues by Offerings
Oracle’s top line benefited from the ongoing cloud-based momentum. Cloud services and license support revenues (74% of total revenues) in the reported quarter increased 2% year over year (up 2% at cc) to $6.947 billion.
Break up of Cloud services and license support revenues
Applications revenues (contributed 40.5% to total cloud services and license support revenues) amounted to $2.816 billion, up 4% year over year (up 4% at cc).
Infrastructure related revenues (59.5%) were $4.131 billion, up 1% on a year-over-year basis (up 1% at cc).
Meanwhile, Cloud license and on-premise license revenues (9%) improved 9% year over year (up 8% at cc) to $886 million.
Hardware revenues (9%) were $814 million, flat (flat at cc) on a year-over-year basis.
Services revenues (8%) declined 8% (down 8% at cc) to $720 million.
Revenues by Geography
Revenues from Americas (representing 54.1% of total revenues) declined 1.6% year over year to $5.068 billion.
Revenues from Europe/Middle East/Africa (29.2%) improved 7.2% from the year-ago quarter’s figure to $2.738 billion.
Revenues from Asia Pacific (16.7%) increased 3% from the year-ago quarter level to $1.561 billion.
Expanding Clientele Holds Promise
Management announced that Fusion HCM, NetSuite ERP and Fusion ERP businesses were up 22%, 23% and 33%, respectively, in the fiscal first quarter. Fusion ERP has customer strength of more than 7,000.
Fusion app business improved 26% with surge in Fusion retention rates. Markedly, autonomous database consumption revenues improved 64% and annualized consumption revenue for Oracle Cloud Infrastructure (OCI) services soared 130%.
Additionally, the company is witnessing strong growth in Cloud HCM, which is increasingly being purchased as part of the company’s ERP cloud application suite. Further, the migration of several midsized SAP customers to Fusion ERP and Fusion HCM remains a tailwind.
Expanding clientele is enabling the company to maintain leading position in cloud ERP market. Management is optimistic on latest ERP deal wins from companies including ICON Health & Fitness, DHL Supply Chain, Iron Mountain, and CTB, a Berkshire Hathaway Company. Key HCM wins include Albertsons, Randstad India, and skeyes.
Moreover, the next-generation autonomous database launched by Oracle, supported by ML, is gaining traction. In the reported quarter, Oracle added new Autonomous Database cloud customers. New product introductions are likely to bolster growth in this category. Markedly, autonomous database in Gen2 public cloud infrastructure is witnessing rapid adoption.
Oracle’s latest Exadata Cloud@Customer service offering is also gaining traction among on-premise customers.
Noteworthy deal wins of OCI and autonomous database during the reported quarter include Xactly, United Breweries of India, Safaricom PLC, Schneider Electric, McDonald’s, Rinna, Polycab India, Arterra Wines Canada, and Lahore University of Management Sciences.
Non-GAAP operating expenses fell 4% year over year (down 3% at cc) to $5.19 billion. As a percentage of non-GAAP revenues, the figure contracted 290 basis points (bps) to 55.4%.
Non-GAAP operating income during the reported quarter was $4.178 billion, up 9% year over year (up 8% at cc).
Non-GAAP operating margin expanded 293 bps (expanded 268 bps at cc) on a year-over-year basis to 45%.
Balance Sheet & Cash Flow
As of Aug 31, 2020, Oracle had cash & cash equivalents, and marketable securities of $42.279 billion, compared with $43.057 billion as of May 21, 2020.
Operating cash flow and free cash flow for the 12 months ended May 21, 2020 came in at $13.092 billion and $11.478 billion, respectively.
Share Repurchases & Dividends
Oracle repurchased 90 million shares worth approximately $5 billion during the fiscal first quarter and paid out dividends worth $3 billion during the 12 months ended Aug 31, 2020.
Over the past 12 months, the company has repurchased 361 million shares worth $19.2 billion. Over the last 10 years, Oracle has reduced the shares outstanding by nearly 40%.
On Sep 10, 2020, the company declared a quarterly dividend of 24 cents per share, payable on Oct 22, 2020, to shareholders as on Oct 8, 2020.
For second-quarter fiscal 2021, Oracle anticipates total revenue growth rate on a year-over-year basis in the range of 1-3% at USD and 0-2% at cc.
Oracle expects non-GAAP earnings per share between 98 cents and $1.02 at USD, and 96 cents and $1 at cc.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 6.39% due to these changes.
Currently, Oracle has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. 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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