Oracle Corporation (NYSE:ORCL) has built up a reputation as an exceptional performer in terms of earnings growth and “beating the number” over the past few years. Given all the crashing action we have been seeing, you might be surprised to learn that ORCL once again beat the number last Thursday evening, when the company posted its Q3 numbers for the world to see, reporting and EPS beat ($0.97 vs. $0.96), ORCL has now topped or matched the Street's earnings expectations for fourteen straight quarters.
But the real surprise was the beat on the top line ($9.8 bln vs. $9.75 bln) after coming up short in the two preceding quarters. It has become a common knock against the company: a stodgy old database name with its days of real growth in the past. Hence, the mission for management is to start to flash revenue growth at the analyst community and flip the script. Q3 was a step in the right direction.
While one quarter of improved performance isn't likely to sway its skeptics, ORCL's growth strategy primarily revolves around its transition into a subscription-based software company that's focused on cloud offerings. The company's traditional on-premise database software hasn't generated meaningful growth in years.
Oracle Corporation (NYSE:ORCL) trumpets itself as a company that develops, manufactures, markets, sells, hosts, and supports application, platform, and infrastructure solutions for information technology (IT) environments worldwide.
The company provides services in three primary layers of the cloud: Software as a Service, Platform as a Service, and Infrastructure as a Service. It offers human capital and talent management, enterprise resource planning, customer experience and relationship management, procurement, supply chain management, project portfolio management, business analytics and enterprise performance management, and industry-specific application software, as well as financial management and governance, and risk and compliance applications.
The company also licenses its Oracle Database for storage, retrieval, and manipulation of data; and Oracle Fusion Middleware software to build, deploy, secure, access, extend, and integrate business applications, as well as automate business processes.
In addition, it provides a range of development tools, identity management, and business analytics software solutions for mobile computing development to address the development needs of businesses; Java, a software development language; and big data solutions.
Further, the company provides Oracle Engineered Systems, servers, storage, industry-specific hardware, and hardware support products, as well as operating systems, virtualization, management, and other hardware-related software.
Additionally, it provides consulting services, including IT strategy alignment, enterprise architecture planning and design, initial software implementation and integration, application development and integration, security assessments, and ongoing software enhancements and upgrade services; and customer support and education services.
The company serves businesses, government agencies, educational institutions, and resellers.
Our ORCL Earnings Summary:
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Oracle beats by $0.01, reports revs in-line; increases the authorization for share repurchases by $15.0 bln
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Reports Q3 (Feb) earnings of $0.97 per share, excluding non-recurring items, $0.01 better than the S&P Capital IQ Consensus of $0.96; revenues rose 1.9% year/year to $9.8 bln vs the $9.75 bln S&P Capital IQ Consensus.
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The Board of Directors increased the authorization for share repurchases by $15.0 billion. The Board of Directors also declared a quarterly cash dividend of $0.24 per share of outstanding common stock. This dividend will be paid to stockholders of record as of the close of business on April 9, 2020, with a payment date of April 23, 2020.
Our ORCL Conference Call, Analyst, and Research Notes:
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Guides to Q4 (May) total subscription revenues to range between 3% to 5% in both constant currency and US dollars. Total revenues are expected to range between -2%, to positive to in both constant currency and U.S. dollars.
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Non-GAAP EPS for Q4 is expected to grow between 3% to 9%, and be between $1.20-1.28 vs Capital IQ consensus of $1.23.
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Total Capex for FY 2020 is expected to be around $2 billion but it could vary.
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"We had an extremely strong quarter with Total Revenues growing 3% in constant currency," said Oracle CEO, Safra Catz. "Subscription revenues, made up of Cloud Services and License Support revenues, grew 5% in constant currency. These consistently growing and recurring subscription revenues now account for 71% of total company revenues, thus enabling a sequential increase in our operating margin, and double-digit non-GAAP Earnings Per Share growth in Q3."
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The company expects only a minimal impact from the coronavirus in Q4 since most of its subscription revenue is already contracted.
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Additionally, ORCL has recently reduced headcount in Europe and has reportedly slowed the pace of its hiring.
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BMO Capital Markets lowers their ORCL tgt to $46 from $62. Firm thought Oracle reported a reasonable January quarter, posting growth of 2% Y/Y (+3% CC). Traction with Cloud ERP solutions continues to grow and they believe HCM results are improving. However, 4Q guidance was weak and their estimates move lower, though the backdrop is more challenging as well. They believe the potential for autonomous database exist longer term, though they remain skeptical of its ability to reignite meaningful revenue growth. Their target price moves to $46, and remain neutral given a lack of catalysts.
