Company Overview: Oracle Corporation (Oracle) provides products and services that address all aspects of corporate information technology (IT) environments, including application, platform and infrastructure. The Company's businesses include cloud and on-premise software, hardware and services. Its cloud and on-premise software business consists of three segments, including cloud software and on-premise software, which includes Software as a Service (SaaS) and Platform as a Service (PaaS) offerings, cloud infrastructure as a service (IaaS) and software license updates and product support. Its hardware business consists of two segments, including hardware products and hardware support. The Company's services business includes the remainder of the Company's segments. Its services business includes activities, such as consulting services, enhanced support services and education services, among others.


ORCL Details

Delivering a complete cloud portfolio:Oracle Corporation (NYSE: ORCL) reported that 80% of their trailing 12-months (TTM) software and Cloud revenue is currently recurring. The group’s Cloud Saas revenue rose 61% while Enterprise Resource Planning(ERP) enhanced 90% organically during the first quarter of 2018. Their overall ERP is currently around 1.3 billion annualized run rate. Their Fusion HCM surged 109%, which is more than the double the growth rate of Workday. Their Data as a service surged 53% while the business is currently over 0.5 billion in annualized run rate. On the other side, Thomas Kurian, Oracle president of product development, has showcased game-changing new services and enhancements across the Oracle Cloud Platform, which shows how customers can transform business with Oracle's cloud services. Moreover, Kurian has also introduced new network capabilities including a Public Cloud Service offering 25 gigabit Ethernet to the host with a global scale elastic DNS Service. Kurian shared Oracle's vision for the future of PaaS where software automatically learns, manages, tunes and scales to meet changing compute needs. Kurian also discussed the world's first autonomous database cloud. The group also announced its Oracle Database 18c, which is the next generation of its industry-leading database. Oracle Autonomous Database Cloud eliminates complexity, human error, and manual tuning, making it easy for customers to operate databases with lower administration costs and freeing them up to focus on other critical business tasks. The latest generation of Oracle Exadata (X7), new innovation in the Oracle Big Data Cloud Platform with new artificial Intelligence, Data Lake and data integration capabilities; and leading-edge new cyber security and systems management solutions are some of group’s new offerings.

 
Oracle NetSuite has accelerated growth:Oracle NetSuite, which is one of the world’s leading providers of cloud-based financials, has announced more product enhancements, more industry-specific features and functionality, a new data center, and more customer and partner wins by leveraging oracle resources. Moreover, NetSuite is able to accelerate growth and product innovation, and strengthen its commitment to customer and partner success. The new product features for services and product companies, the release of SuiteSuccess industry solutions for nonprofits, IT VARs and solution providers, the introduction of SuiteSuccess to NetSuite partners, and the launch of a new data center in the Chicago area, all are of great importance and support ORCL’s considerable global resources. Additionally, Oracle NetSuite has announced the expansion of operations in the Middle East to meet the increasing demand for cloud ERP in the market. NetSuite will also offer support for the new Unified Value Added Tax (VAT) Agreement, set to take effect for Saudi Arabia and the United Arab Emirates (UAE) next year with more Gulf Cooperation Council (GCC) countries expected to follow. The VAT will impact every part of the business, including cash flow, pricing of products and services, financial reporting, tax accounting and reporting and, of course, technology. In addition, NetSuite already has a strong partner presence with 16 partners serving customers in the middle east region. In 2017, NetSuite has added the seven businesses to its Solution Provider Program that includes Azdan Business Analytics; Trinamix Business Solutions; Wolfrayet Business Consulting; Masterkey Software; Foresee Solutions; UnitedofOQ; and Digital Trends.


Growing customer base (Source: Company Reports)
 
Recognized IBM as a strategic HR BPO provider:ORCL has named IBM as a strategic partner to provide Business Process Outsourcing for Human Resources delivered on the Oracle HCM Cloud platform. Both, IBM and Oracle would enable organizations to seamlessly migrate to Oracle’s HCM Cloud platform, transform HR operations and processes, and will capitalize on the efficiencies of a managed service giving access to a global network of HR professionals. Moreover, the benefit of consuming HR as a service has allowed Chief human resources officers (CHROs) around the world to focus on strategic talent and HR direction with providing surety of high quality next generation HR operations.
 
Solid cloud performance:ORCL has reported 7% growth in the revenue to $9.2 billion in the first quarter of FY 18. Cloud plus On-Premise Software Revenues had surged 9% to $7.4 billion. Cloud Software as a Service (SaaS) revenues grew up 62% to $1.1 billion during the quarter. Cloud Platform as a Service (PaaS) plus Infrastructure as a Service (IaaS) revenues had posted 28% growth to $400 million. Overall, the total Cloud Revenues were up 51% to $1.5 billion in the first quarter of FY 18. The multi-billion -dollar cloud business continues to drive ORCL’s overall revenue and earnings stronger. Moreover, in the first quarter of 2018, the non-GAAP Net Income grew up 14% to $2.7 billion and the non-GAAP earnings per share was up 12% to $0.62.


Revenue Model (Source: Company Reports)
 
Dividend:ORCL has declared a quarterly cash dividend of $0.19 per share of outstanding common stock. This dividend would be paid on October 25, 2017 for shareholders with record on October 11, 2017. The group repurchased 10.2 million shares for a total of nearly 500 million. In the past twelve months, the group repurchased 46.6 million shares for a total of 2 billion. They also paid out dividends of 2.8 billion.
 
Future Expectation: The group intends to continue their enhancements in FY 2018 and intends to maintain their goal of 80% SaaS gross margins. The gross margin for PaaS and IaaS reached 44%, as compared to 58% in the past quarter as their geographic build-out goes forward in response to demand, but ahead of the bulk of the revenue recognition. For the second quarter of 2018, the group expects their Cloud revenues, including SaaS, PaaS, and IaaS to rise over 39% to 43%. Overall revenue is forecasted to rise in the range of 2% to 4%. Non-GAAP EPS is forecasted to be in the range of $0.64 and $0.68 in constant currency, which is a rise from $0.61 in the second quarter of 2017. ORCL continues to forecast a better ARR (Annual Recurring Revenue) growth and accordingly expects to witness higher CapEx investments as well. Oracle has over $67 billion in cash and marketable securities, but net of their debt cash position is about 13.6 billion. The group’s short-term deferred revenue has surged 9% in US dollars to 10.3 billion.
 
Stock recommendation: The shares ofOracle have risen 27% in last one year (as on October 12, 2017). The group holds the majority of its cash abroad, so Trump's tax repatriation plan could provide some upside. The first-quarter performance indicates the company is beginning a period of strong growth. Oracle portfolio mainly comprises Cloud and accordingly forecasts a strong operating income growth based on the developments in the segment. The group’s operating margins have improved to 41% during the first quarter of 2018, which is better than 39% of last year. Oracle’s Cloud deferred revenue surged 53% as of first quarter of 2018 and forecasts the Cloud FY 2018 full-year cloud booking growth to be quite strong. Oracle’s applications business growth rate in the Cloud is also outstanding which is in excess of 60%, as compared to their competitors Workday or Salesforce. The group believes that they are way ahead in applications against Workday and growing rapidly. Meanwhile, the group’s Database 18c is their major database innovation in years, and would be rolled in December 2017. The group would launch Database 18c at a very cheap cost to offer a strong competition to Amazon AWS. The group also believes that customers shifting from Amazon's Redshift to Oracle's autonomous databases could control their costs by half or more and Oracle would be offering SLAs that guarantee those cost settings to customers that move. Given the momentum expected from Oracle’s technology stack and opportunities in the cloud along with other innovative product launches with better sales mix, acquisitions, and share repurchase moves, we rate the stock a “Buy” at the current price of USD 48.28.
 

ORCL Daily Chart (Source: Thomson Reuters)