Company Overview: Oracle Corporation (Oracle) provides products and services that address all aspects of corporate information technology (IT) environments, including application, platform and infrastructure. The Company's businesses include cloud and on-premise software, hardware and services. Its cloud and on-premise software business consists of three segments, including cloud software and on-premise software, which includes Software as a Service (SaaS) and Platform as a Service (PaaS) offerings, cloud infrastructure as a service (IaaS) and software license updates and product support. Its hardware business consists of two segments, including hardware products and hardware support. The Company's services business includes the remainder of the Company's segments. Its services business includes activities, such as consulting services, enhanced support services and education services, among others.


ORCL Details

Oracle Corporation (NYSE: ORCL), supplier of software for enterprise information management, provides databases and relational servers, support tools, enterprise business applications etc. Finding use over network computers, digital assistants, PCs, etc., the software solutions have gained a lot of traction over the years. Then, Oracle Cloud gives a platform based on SaaS application solutions and has been recognized as Platform as a Service (PaaS) and Infrastructure as a Service (IaaS) format across the globe. ORCL’s strategic products thus aim to define company’s future. With decent fundamentals maintained over the years, the return on equity has improved from 18.5% in 2017 to 21.5% in 2018. Consistent performance has helped the group maintain EBITDA and operating margin above 40% and 30%, respectively over the last three years.

Decent Performance for the first quarter of FY 19: The company has posted mixed results for the first quarter of FY 19. In the first quarter, the Non-GAAP Net Income has grown by 10% to $2.8 billion. ORCL in the first quarter of FY 19 has reported the adjusted earnings per share of 71 cents, beating the analysts’ estimates for the adjusted earnings per share of 68 cents. The company had reported the adjusted revenue growth of 1 percent to $9.20 billion in the first quarter of FY 19, missing the analysts’ estimates for revenue of $9.26 billion. The company’s Non-GAAP operating income rose by 3% to $3.8 billion from last year and the company has posted the operating margin of  41%, which is same as last year. The non-GAAP tax rate was 19.1%, below base rate of 20%; and there was a 2% rise in short-term deferred revenues to $10.3 billion in comparison to last year. There was a 5% growth in operating cash flow to $15.5 billion for trailing twelve months. Moreover, total cloud services and license support revenues for the first quarter of FY 19 increased by 3.2% to $6.6 billion in constant currency, however fell short of the average analyst estimate of $6.71 billion. This accounted for 72% of total ORCL’s revenue and the most of it is recurring revenues. There was an increase in revenue from cloud license and on-premises license to $867 million against the market estimate. The total cloud revenues grew in all regions and in terms of product categories, ERP grew more than 30%, verticals grew more than 40% and public cloud, PaaS and IaaS grew more than 20 percent. The operating cash flow in past four quarters came at $ 15.5 billion, which is a record level. Over the same four quarters, the company has incurred the capital expenditures of $1.6 billion.


Q1 2019 Financial Performance (Source: Company Reports)

Capital Management: ORCL has increased the share repurchases authorization by $12.0 billion. During the first quarter of FY 19, 212 million shares were repurchased and the amount payed was around $10 billion. In total, the group repurchased 440 million shares last year and absolute shares outstanding were down over 8.5%. Moreover, a quarterly cash dividend of $ 0.19 per share was declared with record date as October 16, 2018 and payment date of October 30, 2018.

Oracle Cloud Native Framework Provides Various Solutions: The group’s Cloud Native Framework has been introduced with a cloud native solution known to set a seamless interface for public cloud, on premises and hybrid cloud deployments; and an advanced level of cloud native managed services and on-premises software has been introduced through Oracle Cloud Infrastructure and Linux Cloud Native Environment under the above framework. Oracle Functions, a new server less cloud service that depends on open source project has also been introduced under the framework. First class Oracle Cloud Infrastructure services built on Oracle’s Gen 2 Cloud IaaS and foundational Kubernetes orchestration and management layer as part of Oracle Container Engine for Kubernetes (OKE) are other features in the kitty.

Accelerating Data Insights for Retailers with Oracle Digital Assistant: Oracle Retail solutions and Oracle Digital Assistant are now integrated, to enable the retailers to have personalized customer experiences and voice-enabled assistants to make employees work seamlessly and efficiently. This will make the work of the employees easier. Oracle Digital Assistant works on the principle of artificial intelligence, AI to understand user behaviors and patterns. Integration with Oracle Retail Offer Optimization Cloud Service can support forecasting of sales, and promotional deployment, etc. and this enables in prioritizing various targets. Based on Oracle Cloud Infrastructure, Oracle Digital Assistant offers simple, single skilled, linear responses. Due to the application of AI for natural language processing (NLP), natural language understanding (NLU) and machine learning (ML), ORCL leverages its enterprise applications to provide a digital assistant that can actually help the enterprise to streamline its work. Launch of Oracle Retail Offer Optimization Cloud Service early this year has also helped the group in terms of laying better optimization features. This helps retailers to analyze promotion along with pricing scenario over product lifecycle and thus provide constructive offers.


ORCL Journey (Source: Company Reports)

Provides a complete set of solutions for the high performance computing workload: Oracle has announced for a new bare metal Oracle Cloud Infrastructure for enterprises to manage workloads including anything related to artificial intelligence or engineering simulations; and these new features are part of the newly introduced “Clustered Network”. The network enables customers to access a low network delay and high bandwidth RDMA network. Oracle is now offering the large organizations with a complete set of solutions; and these are needed for high performance computing (HPC) workload, to help avail modern cloud computing over on-premises compute clusters at a reasonable cost. The organizations or enterprises that were unable to have high performance cloud offerings at cost effective level can now meet business goals easily. Primarily, the organizations now have a low-cost path to extend their on-premises HPC workloads to the cloud with great performance. Thus, Oracle’s Clustered Network offering at the data center level offers user friendly features and workloads that can be used across varied industries. For instance, the offering is run by Intel Xeon Scalable processors, and adds a lot of value to the business.

Future Outlook: For the second quarter of 2019, ORCL expects the earnings per share to be in the range of $0.78-0.80, which means a growth between 12% to 16%, the mid-point of which was in line with market estimates. ORCL again expects to report double-digit non-GAAP earnings per share growth for FY19. Total revenues are expected to grow from 0% to 2% in constant currency because the company had a tough comparison with last year’s revenue, especially the revenue from license. Assuming current exchange rate, non-GAAP EPS for the second quarter of FY 19 in USD is expected to grow between 11% to 15% and is expected to be between $0.77 and $0.79. The projection for the second quarter of FY 19 is based on base tax rate of 20%. The company expects this to be averaged around 20% for fiscal year 2019.

Stock Recommendation: ORCL stock is trading at $47.32, and has support at $42.83 and resistance at $51.8. Oracle's software business is growing faster than IBM's software business and now Oracle has captured the number 2 software company position in the world while IBM has fallen to number 3. The group has also provided strategic offerings including the cloud ERP product to lead in the SaaS applications layer of the cloud. Autonomous cloud database is also of strategic importance when it comes to IaaS or infrastructure layer of the cloud. On financial front, the company has grown its free cash flow by 10% in one year. We give a “Buy” on the stock at the current price of $ 47.32, up 1.85% on December 12, 2018, ahead of the Q2 FY19 earnings release due around December 17, 2018.

 
ORCL Daily Chart (Source: Thomson Reuters)

 
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