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After the hell that many hotshot software stocks have put investors through this young year, Wall Street analysts got a break. “Listening to Oracle ( ORCL ) conference calls is always a hoot,” said Canaccord Genuity analyst Richard Davis in a research note Wednesday, following Oracle’s late-Tuesday Q3 earnings that beat analyst estimates . “In the 16 years we’ve followed this firm, we can’t remember a quarter when management wasn’t wildly bullish. This quarter was no different, with Trump-like phrases like ‘slaughter,’ ‘better and better,’ ‘game over,’ etc. “The good news for our now almost exactly 3-year-old buy rating is that Oracle’s execution has begun to catch up with its verbiage. Indeed, this was the first quarter in four in which Oracle did not scuffle somewhere — bookings, revenues, earnings or whatever. Investors are still jumpy after the January panic, so this means they are flocking to moneymakers like Oracle.” Oracle stock was up 4% in afternoon trading in the stock market today , near 40, and touched an eight-month high. Rivals Microsoft ( MSFT ), Salesforce.com ( CRM ) and SAP ( SAP ) were up about 1% Wednesday afternoon. Not that Davis was totally giddy: “Should ORCL decisively penetrate the $40 price level, we will declare victory and seriously consider downgrading the stock from today’s buy to a possible hold.” What’s all the fuss? They can visualize Oracle’s cloud-revenue skyrocketing, while traditional database-software sales shrink. Oracle and its traditional enterprise-software customers have faced a tough conversion, but now Oracle is developing serious momentum with its own cloud and hybrid-cloud growth, shepherding the transition of its customers while absorbing the shrinkage of its still-dominant traditional enterprise sales. Oracle Acceleration Seen “With 310,000 on-premise database customers, the company sees an enormous potential TAM (total addressable market), as database customers continue to shift to the cloud,” said Evercore ISI analyst Kirk Materne in a research note Wednesday. “Management also noted that renewal rates were higher than in previous years.” Materne put annual recurring revenue from cloud software-as-a-service (SaaS) and platform-as-a-service (PaaS) sales up 77% in constant currency in Q3, with billings up 32%, “and importantly, this strength is expected to translate into accelerating revenue growth going forward,” he said. In Q3, Oracle said it added 942 new SaaS customers, more than half of which were Oracle Fusion ERP (enterprise resource planning) software subscribers. SaaS clients now total more than 11,000 with more than 2,000 on Fusion, Materne noted. Oracle sold customer experience (CX) SaaS to 465 new customers and 500 existing ones in Q3. Human capital management software was sold to 213 new customers. Oracle’s ERP Cloud attracted 334 new clients, “175 of which did not have an Oracle on-premise app before,” said Materne, for an installed base exceeding 1,800 clients. Still, for all the excitement of watching Oracle’s cloud revenue fly 40% to $735 million in Q3, that only amounted to 8% of Oracle’s total $9.01 billion in sales for the quarter. Revenue fell 3% from the year-earlier quarter. Traditional software revenue slipped to $6.34 billion from $6.64 billion, as the legacy line slipped to 70% from 71% of total revenue. Likewise, legacy hardware sales slipped to $1.13 billion, or 13% of Q3’s total sales, from $1.29 billion, or 14% a year before. “This is obviously a continuation of execution of their pivot toward the cloud pursuit,” Gartner analyst Charles “Chad” Eschinger told IBD via email. “Top line is better than I expected, even with the transition, especially with the increase in margins, where there have been many curmudgeons.” Scalper1 News
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