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Oracle (ORCL) Q3 Earnings Miss Estimates, Revenues Up Y/Y

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Oracle (ORCL - Free Report) reported third-quarter fiscal 2022 non-GAAP earnings of $1.13 per share, missing the Zacks Consensus Estimate by 3.42%. The bottom line was down 3% from the year-ago quarter’s levels (up 1% at constant currency or cc).

Management had guided non-GAAP earnings per share growth rate on a year-over-year basis in the range of 2-6% at USD and at cc and in the band of $1.19-$1.23 per share.

Revenues increased 4% (up 7% at cc) year over year to $10.5 billion and beat the Zacks Consensus Estimate by 0.02%. The top-line performance was mainly driven by strength in the cloud business.

For the fiscal third quarter, Oracle had anticipated a total revenue growth rate — on a year-over-year basis — in the range of 3-5% at USD and at 6-8% cc.

Oracle shares are down 6.9% in the past year against the Zacks Computer – Software industry’s fall of 18.1% and the Computer and Technology sector’s decline of 31.4%.

Oracle Corporation Price, Consensus and EPS Surprise

 

Oracle Corporation Price, Consensus and EPS Surprise

Oracle Corporation price-consensus-eps-surprise-chart | Oracle Corporation Quote

 

Revenues by Offerings

Oracle’s Cloud services and license support revenues (73% of total revenues) in the reported quarter increased 5% year over year (up 8% at cc) to $7.637 billion. The upside can be attributed to continued strength in the Fusion, Autonomous Database and Oracle Cloud Infrastructure (OCI) services.

Management noted that the company’s total cloud revenues on annualized basis stood at $11.2 billion and were up 26%.

Break up of Cloud Services & License Support Revenues

Applications revenues (contributed 40.7% to total cloud services and license support revenues) amounted to $3.187 billion, up 8% year over year (up 10% at cc).

Infrastructure-related revenues (58.4% to total cloud services and license support revenues) were $4.450 billion, up 3% on a year-over-year basis (up 7% at cc).

Cloud license and on-premise license revenues (12 % of total revenues) increased 1% year over year (up 4% at cc) to $1.289billion.

Hardware revenues (8% of total revenues) were $798 million, down 3% (up 1% at cc) on a year-over-year basis.

Services revenues (7% of total revenues) rose 7% (up 11% at cc) to $789 million.

Revenues by Geography

Revenues from the Americas (representing 55.6% of total revenues) increased 7.8% year over year to $5.849 billion.

Revenues from Europe/Middle East/Africa (28.7%) moved up 1.1% from the year-ago quarter’s figure to $3.014 billion.

Revenues from the Asia Pacific (15.7%) declined 1.8% from the year-ago quarter’s level to $1.650 billion.

Expanding Clientele Remains Noteworthy

Management noted that the strategic back-office cloud applications business increased 29% and the strategic back-office cloud applications business now has $5.1 billion in annualized revenues. Management noted that revenues from Fusion ERP, Fusion HCM and NetSuite ERP were up 35%, 22% and 29%, respectively.

Consumption revenues for OCI services, which includes Autonomous Database, soared 93% at cc. Cloud customer consumption revenues increased 43% year over year.

Database subscription revenues (including database support and database cloud services) rose 4% at cc.

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 its leading position in the cloud ERP market. Management is optimistic regarding the latest Oracle Fusion Cloud ERP, HCM and EPM applications. The company won Fusion Cloud ERP deals from companies, including Johnson & Johnson, Trevi Group, Haemonetics, YesStyle.com, Saskatchewan Health Authority, Entegris Health, TD Bank, Bharti Airtel, Silicon Valley Bank and Societe Generale in France.

The company’s HCM and ERP clientele base also include Morgan Chase, Santander, Bank New York Mellon, HSBC, Lloyds, Macquarie, Credit Suisse, UBS, Credit Agricole and many others.

The next-generation autonomous database launched by Oracle, supported by ML, is witnessing steady traction. New product introductions, including new OCI managed services, are likely to boost growth in this category. The autonomous database in Gen2 public cloud infrastructure is witnessing a healthy uptake.

Oracle’s latest Exadata Cloud@Customer service offering is gaining traction among on-premise customers. The latest wins include Deutsche Bank, City of Atlanta and State of Kansas

Other noteworthy deal wins for OCI during the reported quarter include Wipro Limited, Red Bull Racing Honda, Siemens, Toyota, Institut National d'Assurance Maladie au Togo (INAM) and Cognizant.

Operating Details

Non-GAAP total operating expenses increased 8% year over year (up 10% at cc) to $5.699 billion. As a percentage of non-GAAP revenues, the figure contracted 164 basis points (bps) to 54.21% from the prior-year quarter’s levels.

Non-GAAP operating income during the reported quarter was $4.814 billion, up 1% year over year (up 4% at cc).

Non-GAAP operating margin remained almost unchanged on a year-over-year basis at 46%.

Balance Sheet & Cash Flow

As of Feb 28, 2022, Oracle had cash & cash equivalents and marketable securities of $23.39 billion compared with $22.84 billion as of Nov 30, 2021.

Operating cash flow and free cash flow for the trailing 12 months ended Feb 28, 2022, amounted to $10.396 billion and $6.591 billion, respectively.

Share Repurchases & Dividends

Oracle repurchased 7 million shares worth approximately $600 million during the fiscal third quarter, as it reduced the buyback in advance of the purchase of Cerner Corporation

In December, Oracle and Cerner jointly announced an agreement for Oracle to acquire Cerner in an all-cash transaction amounting to $28.3 billion or $95 per share. The acquisition, the biggest ever for Oracle, is expected to bolster the company’s position in the lucrative healthcare domain.

On Mar 10, 2022, the company declared a quarterly dividend of 32 cents per share payable on Jan 19, 2022, to shareholders as of Apr 21, 2022.

Q4 Guidance

For fourth-quarter fiscal 2022, Oracle anticipates total revenue growth rate on a year-over-year basis in the range of 3-5% at USD and at 6-8% cc. The Zacks Consensus Estimate for revenues is pegged at $11.70 billion, indicating an increase of 4.25% on a year-over-year basis.

Cloud services and license support revenues are projected to grow 4-6% in USD and at 6-8% at cc for the current quarter.

Oracle expects non-GAAP earnings per share (EPS) growth rate on a year-over-year basis in the range of 2-6% at cc and in the band of $1.40-$1.44 per share. The non-GAAP EPS for the fourth quarter is expected in the band of $1.14-$1.18 per share at cc.

The Zacks Consensus Estimate for the same is pegged at $1.35 per share.

Zacks Rank & Stocks to Consider

At present, Oracle carries a Zacks Rank #2 (Buy).

Some other top-ranked stocks from the Zacks Computer and Technology sector are Advanced Micro Devices (AMD - Free Report) , carrying a Zacks Rank#1 (Strong Buy), and Apple (AAPL - Free Report) , carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Advanced Micro Devices’ shares is up 31.1% in the past year compared with the Zacks Electronics - Semiconductors industry’s return of 12.8% and the Computer and Technology sector’s fall of 0.6%.

Apple shares have returned 30% in the past year compared with the Zacks Computer - Mini computers industry’s rise of 34.1% and the Computer and Technology sector’s fall of 0.6% in the past year. The long-term earnings growth rate for the company is currently projected at 12.50%.


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