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Oracle (ORCL) Q4 Earnings & Revenues Top Estimates, Up Y/Y

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Oracle Corporation (ORCL - Free Report) delivered stellar fourth-quarter fiscal 2018 results. Non-GAAP earnings of 99 cents per share comfortably beat the Zacks Consensus Estimate of 94 cents. Moreover, revenues of $11.260 billion surpassed the Zacks Consensus Estimate of $11.195 billion.

Earnings increased 11.2% from the year-ago quarter. This can primarily be attributed to 2.9% growth in revenues which was toward the higher range of management’s guidance of 1-3%.

Structural Changes

The company has adopted anew Accounting Standards Codification ("ASC") 606 using full retrospective method.

The company had recently launched a bring-your-own-license (BYOL) program which allows customers to move their existing on-premise licenses to the Oracle Cloud. In doing so, Oracle claims that licenses covered by the BYOL program can neither be defined as on-premise nor as cloud.

Consequently, the company now reports its new software licenses under its new Cloud license and on-premise license segment. Further, the company merged its Cloud SaaS, Cloud PaaS and IaaS along with its software license updates and product support into Cloud services and license support.

Share Price Movement

Shares of the company went down more than 3% in after-hours trading.  In the past year, the company’s shares have gained just 0.4%, underperforming the industry’s growth of 34.5%.

The share price decrease can possibly be attributed to the new accounting standard adopted by the company and the structural changes which it has undergone in the quarter. Oracle no longer intends to break out its cloud revenues and does not provide any guidance on SaaS, Cloud PaaS and IaaS. This move is likely to enhance investor concern about the company's outlook.

The share price movement was also impacted by tepid second-quarter earnings guidance, adding to the woes.

Cloud Drove Solid Top Line

Oracle’s top-line growth benefited from the ongoing cloud-based momentum. Total cloud services and license support revenues (60% of total revenues) for the quarter advanced 7% (5% in constant currency) to $6.77 billion. We believe that the company’s growing cloud market share will continue to drive top-line growth in the foreseeable future.

Under the previous reporting structure in last quarter, which was called total Cloud revenues were $1.7 billion.

However, total cloud license and on-premise license decreased 5.4 to $2.48 billion year over year.

Management stated that Fusion ERP and Fusion HCM came in at $2.2 billion in full year 2018. Fusion Apps advanced 62% for the full year, whereas, Fusion ERP was up 68% for the full year. Fusion HCM surged 65%.

Further, the next-generation autonomous database launched by Oracle, which is supported by machine learning, is now fully available and is a key catalyst for the company. Management believes that the new database will improve Oracle’s competitive position in the cloud against Amazon Web Services (“AWS”).

The company’s tech ecosystem is more than $21 billion and increased 5% for fiscal 2018. Database ecosystems were up 6%. During the quarter, database new license revenues increased 9%.

The company also stated that its next-generation PaaS grew 45% for the full year and came in at $1.1 billion.

Total hardware revenues were almost flat year over year and came in at $$1.11 billion. Services revenues decreased 1.2% to $883 million.

Operating Details

Non-GAAP operating expenses, as percentage of revenues, decreased 130 basis points (bps) to 52.9%.

As a result, non-GAAP operating income during the quarter came in at $5.3 billion, up 4% from last year non-GAAP operating margin expanded 100 bps from the year-ago quarter to 47%.

Balance Sheet & Cash Flow

As of May 31, 2018, Oracle had cash & cash equivalents and marketable securities of $67.3 billion, down from $70.45 billion sequentially. Operating cash flow for the trailing 12 months was $15.4 billion, while free cash flow was $13.7 billion.

Share Repurchases & Dividends Continue

Oracle repurchased around 106 million shares worth $5 billion during the quarter. Over the last 12 months, the company repurchased shares worth $11.5 billion and paid dividends of approximately $3.1 billion. The company also declared a quarterly dividend of 19 cents per share, payable on Jul 31, 2018.

Guidance

For the first quarter fiscal 2019, total revenues are anticipated to grow in the range of 1-3% in constant currency.

Non-GAAP earnings are anticipated to be between 67 cents and 69 cents for the quarter, while in constant currency non-GAAP earnings is expected to be in the range of 68-70 cents. The Zacks Consensus Estimate is pegged at 72 cents per share.

Zacks Rank & Key Picks

Currently, Oracle carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the technology sector are NVIDIA Corp. (NVDA - Free Report) , Western Digital Corporation (WDC - Free Report) and Seagate Technology PLC (STX - Free Report) , all sporting a Zacks Rank #1 (Strong Buy).  You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings estimates for NVIDIA, Western Digital and Seagate are currently pegged at 10.25%, 19% and 18.9%, respectively.

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