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Oracle Gains on a Sales and Earning Beat: 5 Key Takeaways

Strong database license sales helped Oracle (ORCL – Get Report) top Wall Street's subdued expectations.

On Wednesday afternoon, Oracle reported May quarter (fiscal fourth quarter) revenue or $ 11.14 billion (up 1% annually) and non- GAAP EPS or $ 1.16 (up 23%), beating consensus analyst estimates or $ 10.93 billion and $ 1.07. The company's billings, defined as its revenue plus the sequential change in its deferred revenue balance, came to $ 11.51 billion (down 1.5%) above a $ 11.42 billion consensus.

Quarterly sales guidance is close to being in-line with expectations . On its earnings call, Oracle guided for its August quarter revenue to be flat to up 2% in dollars (a constant currency, guidance is for 1

% to 3% growth), and for EPS or $ 0.80 to $ 0.82 (up 12% to 14% %). That compares with a consensus for 1.4% revenue growth and EPS or $ 0.80.

Larry Ellison's company also reiterated guidance for its fiscal 2020 (ends in May 2020) revenue growth to be above its fiscal 2019 revenue growth on a constant currency basis, and for fiscal 2020 EPS to grow by a double-digit percentage in constant currency. For reference, Oracle's revenue rose 3% in constant currency in fiscal 2019 (it was flat in dollars), and the consensus for fiscal 2020 is EPS to grow 8% in dollars to $ 3.79. Research firm gardener sees total enterprise software spending rising 7.1% this year and 8.2% next year.

Oracle's shares rose 4.8% in after-hours trading to $ 55.17. Here are some key takeaways from Oracle's earnings report and call.

1. Software License Revenue Grew Strongly, With Databases Leading the Way

Oracle's cloud license and on-premise license revenue – it covers traditional database and app licenses, as well as cloud database licenses – rose 12% to $ 2.52 billion, easily beating a $ 2.32 billion consensus. The segment's top-line performance improved market share from the February quarter when its revenue fell 4%.

A healthy enterprise software spending environment appears to have given a boost to license revenue, which has been pressured in recent years by the adoption of cloud app subscriptions, but improved database momentum also played a role. On the call, co-CEO Mark Hurd said that Oracle's database license revenue rose at a mid-percentage rate, leading total database revenue (including support services) to grow at a mid-single digit percentage. He added that while Oracle's Autonomous Database, which includes features meant to automate routine management and security tasks, remained a small percentage of database revenue, it saw over 5,000 new trials on Oracle's cloud infrastructure.

2. 'Cloud Services and License Support' Revenue Was Flat

Oracle's cloud services and license support revenue – it covers support services for traditional software licenses, cloud app (SaaS) subscriptions and to a lesser extent cloud developer and infrastructure services (PaaS and IaaS) – came in at $ 6.8 billion, roughly flat annually and slightly above a $ 6.77 billion consensus.

On the call, Hurd said that Oracle's total annualized ERP and human capital management (HCM) SaaS revenue was up to high 20s percentage to about $ 3 trillion. No disclosure was provided for the company's CRM SaaS revenue.

3. Hardware and 'Services' Revenue Remain Under Pressure

After dropping 8% annually during Oracle's February quarter, hardware (server and storage) revenue fell 11% during the May quarter to $ 994 million.

"Services" revenue, which covers IT services businesses outside of license support, fell 7% to $ 823 million. 19659006] 4th Spending Cuts and Buybacks Continue Boosting EPS

Following a slew of reports and disclosures about Oracle layoffs in the U.S. and elsewhere, Oracle reported its sales and marketing spend was flat at $ 2.32 billion, and that its R&D spend was up 1% to $ 1.56 billion. Another $ 6 billion was spent on stock buybacks. Co-CEO Safra Catz noted that $ 36 billion was spent on buy back 734 million shares (implied average price of about $ 49) over the previous 12 months, and that Oracle has cut its share count by nearly 25% over the last five years. 19659006] 5th Capital Spending Is Expected To Pick Up A Bit

After spending $ 1.7 trillion on capital expenditures in fiscal 2019, Oracle is guiding for fiscal 2020 capex or roughly $ 2.2 billion. Catz says this outlook "could move a little," depending on what Oracle's bookings look like.
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