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Oracle (ORCL) Up 6.6% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Oracle (ORCL - Free Report) . Shares have added about 6.6% 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 the most recent earnings report in order to get a better handle on the important drivers.

Oracle Q2 Earnings & Revenues Surpass Estimates

Oracle reported second-quarter fiscal 2021 non-GAAP earnings of $1.06 per share, beating the Zacks Consensus Estimate by 6%. Further, the bottom line was up 19% from the year-ago quarter (up 17% at constant currency or cc). Further, the reported figure surpassed the higher end of management’s guided range of 98 cents to $1.02 at USD, and 96 cents to $1 at cc.

Moreover, non-GAAP revenues improved 2% (up 1% at cc) year over year to $9.80 billion, outpacing the Zacks Consensus Estimate by 0.15%. For second-quarter fiscal 2021, Oracle anticipates total revenue growth rate on a year-over-year basis to be 1-3% at USD and 0-2% at cc.

Top Line in Detail

Oracle reported total revenues (on a GAAP basis) of $9.80 billion, up 2% (up 1% 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 (72% of total revenues) in the reported quarter increased 4% year over year (up 4% at cc) to $7.112 billion.

Break up of Cloud services and license support revenues

Applications revenues (contributed 41% to total cloud services and license support revenues) amounted to $2.901 billion, up 5% year over year (up 5% at cc).

Infrastructure related revenues (59%) were $4.211 billion, up 4% on a year-over-year basis (up 3% at cc).

Meanwhile, Cloud license and on-premise license revenues (11% of total revenues) declined 3% year over year (down 5% at cc) to $1.092 billion.

Hardware revenues (9% of total revenues) were $844 million, down 3% (down 3% at cc) on a year-over-year basis.

Services revenues (8% of total revenues) declined 7% (down 8% at cc) to $806 million.

Revenues by Geography

Revenues from Americas (representing 54% of total revenues) declined 0.8% year over year to $5.259 billion.

Revenues from Europe/Middle East/Africa (29%) improved 5.8% from the year-ago quarter’s figure to $2.852 billion.

Revenues from Asia Pacific (17%) increased 4.6% from the year-ago quarter level to $1.689 billion.

Expanding Clientele Remains Noteworthy

Strategic back-office applications business improved 26% with surge in retention rates. Management announced that Fusion HCM, NetSuite ERP and Fusion ERP businesses were up 24%, 20% and 33%, respectively, in the fiscal second quarter. Fusion ERP has customer strength of more than 7,500.

Markedly, autonomous database consumption revenues improved 64% and annualized consumption revenues for Oracle Cloud Infrastructure (OCI) services soared 139%.

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 large-scale SAP customers to Fusion ERP cloud 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 Fusion Cloud ERP deal wins from companies including Aegon, Coppel, New Zealand Ministry of Social Development, Astec Industries, First Solar, and KPMG Lower Gulf. Key Fusion Cloud HCM wins include Abdul Latif Jameel Enterprises, Home Office (UK), and Federated Co-operatives Limited.

Moreover, the next-generation autonomous database launched by Oracle, supported by ML, is gaining traction. In the reported quarter, the company added new Autonomous Database cloud customers. New product introductions, including new OCI managed services, 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 during the reported quarter include MercadoLibre, Conduent, Nippon Life India Asset Management, OUTFRONT Media, DeepZen, Workhuman, Temple University, and IQAX.

Operating Details

Non-GAAP operating expenses fell 6% year over year (down 7% at cc) to $5.212 billion. As a percentage of non-GAAP revenues, the figure contracted 480 basis points (bps) to 53.2%.

Non-GAAP operating income during the reported quarter was $4.588 billion, up 14% year over year (up 12% at cc).

Non-GAAP operating margin expanded 478 bps (expanded 452 bps at cc) on a year-over-year basis to 47%.

Balance Sheet & Cash Flow

As of Nov 30, 2020, Oracle had cash & cash equivalents, and marketable securities of $38.593 billion, compared with $42.279 billion as of Aug 31, 2020.

Operating cash flow and free cash flow for the 12 months ended Nov 30, 2020 came in at $13.967 billion and $12.134 billion, respectively.

Share Repurchases & Dividends

Oracle repurchased 68 million shares worth approximately $4 billion during the fiscal second quarter and paid out dividends worth $3 billion during the 12 months ended Nov 30, 2020.

Over the past 12 months, the company has repurchased 338 million shares worth $18.2 billion. Over the last 10 years, Oracle has reduced the shares outstanding by nearly 42%.

Q3 Guidance

For third-quarter fiscal 2021, Oracle anticipates total revenue growth rate on a year-over-year basis in the range of 2-4% at USD and 1-3% at cc.

Oracle expects non-GAAP earnings per share between $1.09 and $1.30 at USD, and $1.06 and $1.10 at cc.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 5.99% due to these changes.

VGM Scores

At this time, Oracle has a poor Growth Score of F, however its Momentum Score is doing a lot 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 top 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 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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