Oracle (ORCL) Up 11.9% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

Wed, Oct 9, 2024, 8:30 AM 6 min read

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 Surpass Estimates, Revenues Increase Y/Y

Oracle reported first-quarter fiscal 2025 non-GAAP earnings of $1.39 per share, which beat the Zacks Consensus Estimate by 5.3% and increased 16.8% year over year. At constant currency (cc), earnings increased 18% year over year.

Revenues rose 6.9% (up 8% at cc) year over year to $13.3 billion and beat the Zacks Consensus Estimate by 0.68%, driven by continued momentum from its Oracle Cloud Infrastructure (“OCI”) business, including from winning cloud-computing contracts from AI-focused startups.

Oracle announced a multi-cloud partnership with Amazon-owned Amazon Web Services (“AWS”). The new offering, Oracle Database@AWS, allows customers to access Oracle Autonomous Database on dedicated infrastructure and Oracle Exadata Database Service within AWS. Oracle Database@AWS will provide customers with a unified experience between OCI and AWS, offering simplified database administration, billing and unified customer support.

In addition, customers will have the ability to seamlessly connect enterprise data in their Oracle Database to applications running on Amazon Elastic Compute Cloud, AWS Analytics services, or AWS' advanced AI and machine learning (ML) services, including Amazon Bedrock. Revenues from the Americas increased 6.8% year over year to $8.37 billion and accounted for 62.9% of total revenues. Europe/Middle East/Africa climbed 7.4% year over year to $3.22 billion and contributed 24.3% of total revenues. The remaining revenues came from Asia Pacific, which increased 6.2% year over year to $1.7 billion.

Top-Line Details

Cloud services and license support revenues increased 10% year over year (9% at cc) to $10.51 billion, driven by strategic cloud applications, autonomous database and OCI. Cloud license and on-premise license revenues gained 7% year over year (8% at cc) to $870 million.

Total cloud revenues (SaaS plus IaaS) were up 22% at $5.6 billion. Cloud Infrastructure (IaaS) revenues came in at $2.2 billion, up 45% year over year and at cc. Cloud Application (SaaS) revenues of $3.5 billion increased 10% year over year and at cc.

Fusion Cloud ERP (SaaS) revenues came in at $0.9 billion, up 16% year over year and 17% at cc. NetSuite Cloud ERP (SaaS) revenues of $0.9 billion increased 20% year over year and at cc. Hardware revenues were $655 million, down 8% year over year (down 8% in cc). Services revenues decreased 9% (down 8% at cc) to $1.26 billion.

Application subscription revenues, which include product support, were $4.8 billion, up 7% year over year. The company’s strategic back-office SaaS applications now have annualized revenues of $8.2 billion and were up 18%. Infrastructure subscription revenues, which includes license support, were $5.8 billion and up 14%. Infrastructure cloud services revenues increased 46% and were up 49%, excluding legacy hosting services.

The company’s infrastructure cloud services now have annualized revenues of $8.6 billion. OCI consumption revenues increased 56% and demand continued to outstrip supply. Cloud database services, which were up 23%, now have annualized revenues of $2.1billion. Database subscription revenues, which include database license support, were up 4%. Software license revenues were up 8% to $870 million, including Java, which saw excellent growth.

Operating Details of Oracle

The non-GAAP total operating expenses increased 3% year over year (3% at cc) to $7.59 billion.

The non-GAAP operating income was $5.7 billion, up 13% year over year (up 14% at cc). The non-GAAP operating margin was 43%, which expanded 228 basis points on a year-over-year basis.

ORCL’s Balance Sheet & Cash Flow

As of Aug. 31, 2024, Oracle had cash & cash equivalents and marketable securities of $10.9 billion compared with $10.6 billion as of May 31, 2024.

Operating cash flow and free cash flow amounted to $19.12 billion and $11.27 billion, respectively.

The company’s remaining performance obligation (RPO) is more than $99 billion, up 52% at constant currency. Cloud RPO grew more than 80% and now represents nearly three-fourths of total RPO.

Roughly 38% of total RPO is expected to be recognized as revenues over the next 12 months, which reflects the growing trend of customers wanting larger and longer contracts as they see how Oracle Cloud services are benefiting their businesses.

The company purchased 1.1 million shares for a total of $150 million. The board of directors declared a quarterly cash dividend of 40 cents per share of outstanding common stock.

Guidance

For the second quarter of fiscal 2025, total revenues are expected to grow in the band of 7-9% in constant currency and between 8% and 10% in USD at today's exchange rate. Total cloud revenues are expected to grow in the range of 23-25% at constant currency and 24-26% in USD.

Non-GAAP EPS is expected to grow between 6% and 10% at cc. Non-GAAP EPS is expected to grow between 8 cents and 12 cents. Non-GAAP EPS is projected in the range of $1.42-$1.46 at constant currency and between $1.45 and $1.49 in USD.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review.

VGM Scores

At this time, Oracle has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% 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.

Outlook

Estimates have been broadly 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.

Performance of an Industry Player

Oracle is part of the Zacks Computer - Software industry. Over the past month, Salesforce.com (CRM), a stock from the same industry, has gained 18.5%. The company reported its results for the quarter ended July 2024 more than a month ago.

Salesforce.com reported revenues of $9.33 billion in the last reported quarter, representing a year-over-year change of +8.4%. EPS of $2.56 for the same period compares with $2.12 a year ago.

For the current quarter, Salesforce.com is expected to post earnings of $2.43 per share, indicating a change of +15.2% from the year-ago quarter. The Zacks Consensus Estimate has changed +0.1% over the last 30 days.

Salesforce.com has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of D.

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