Oracle (ORCL) is taking a victory lap this morning, its shares up 69 cents, or 2.5%, at $27.81, after the company last night reported fiscal Q4 revenue in line with expectations in what has been regarded as a tough spending environment, and profit per share slightly ahead of expectations. The company forecast revenue growth this quarter and profit per share more or less in keeping with analyst’ expectations.
CEO Larry Ellison dismissed concerns about the company’s hardware business, which saw a 16% year-over-year decline for the second quarter in a row. Ellison reiterated the contention he’s advanced in past quarters, namely, that the company is still pruning the hardware assets it picked up with the purchase of Sun Microsystems. He sees hardware returning to growth in 2013.
The release was sent out earlier than the expected release this Thursday. Analysts concluded that was because word had leaked out that Oracle’s head of U.S. sales, Keith Block, was leaving the company. Indeed, Nomura Equity Research’s Rick Sherlund had sent out a note late Sunday disclosing that bit of information. But the Street seems unruffled by the departure. As one observer, Al Hilwa with IDC, told me yesterday evening, Ellison has such a firm hand on the company, and there are so many sales mavens at Oracle, one single departure seems unlikely to harm the operations.
The Street is brimming over with accolades this morning. The stock has gotten one upgrade, that I can see, by CLSA Asia-Pacific Markets’s Ed Maguire, who raised his rating on the shares to Outperform from Perform, with a $32 price target.
“Overall results were decent despite F/X headwinds,” writes Maguire, in particular the sales of “vertical” applications licenses. The hardware business is “showing signs of stability,” he thinks.
Vertical apps are in fact the key to strong cash flows, along with the company’s ability to sell “software as a service,” or SaaS, apps that defray the effects of younger competitors such as Salesforce.com (CRM):
Oracle�s application licenses grew 27% in the quarter, benefiting from strong adoption in key verticals (including health care, retail and financial services). These industries provide Oracle with opportunities that are less contested, and offer potential for comprehensive enterprise deals (we�ve heard of several in retail and health care). The vertical approach is allowing Oracle to stay one step ahead of commoditization of more horizontal offerings.With the addition of RightNow and Taleo, Oracle noted its SaaS bookings are approaching $1bn annually. At roughly 5% of total, this is not moving the needle much, but still helping offset the disruptive impact that pure-play SaaS vendors are having on application sales. With M&A a core competency, Oracle is well provisioned with $37bn in cash and $10bn authorized for buybacks.
Here are some other views today:
Rick Sherlund, Nomura Equity Research: Reiterates a Buy rating on the shares and a $32 price target. “Oracle moved up 4Q�12 earnings to Monday afternoon from Thursday to address concerns regarding the departure of Keith Block, head of North American sales. Knowing the company�s 4Q�12 results were in line to slightly ahead of consensus estimates, management decided it was best to release the results, as opposed to enduring three more trading days of speculation regarding the cause of Mr Block�s departure. On the call, management commented that the normally and potentially disruptive process of assigning new sales territories and quotas was addressed in the first week of the August quarter and was optimistic there should not be further disruption from additional changes in sales organization.”
Mark Murphy, Piper Jaffray: Reiterates a Buy rating and a $33 price target. “Oracle’s bullish commentary on the pipeline, its sales resources and the hardware business, overlaid with our mathematical analysis, suggest constant currency growth rates may uptick in the second half of the year, which would surprise investors and could move shares higher off of a potential sentiment and valuation trough.”
Israel Hernandez, MKM Partners: Reiterates a Buy rating and a $34 price target. The quarter’s results “modest upside surprises to software license, hardware and EPS,” which is sufficient with shares trading at only 10 times his estimate for calendar 2013 earnings per share. Hernandez cut his estimate for this fiscal year, to $38.76 billion in revenue and $2.64 per share in profit, down from a prior estimate for $39.93 billion and $2.69, given that the Q1 outlook was lighter than he expected: “As expected, Oracle lowered revenue expectations to reflect a five-percentage-point year/year headwind. Revenue growth for Q1 is expected to range between -2% and +1% on a reported basis (+3% to +6% cc) vs. our estimate of +4.9%. Factoring in acquisition, guidance implies organic growth in the low single digits, slightly below our expectations. In addition to FX, we believe the guide also reflects an element of conservatism given the macro, as well as potential salesforce disruptions resulting from the ongoing sales reorganization (departure of U.S. head of sales Keith Block) and a potential swamp draining in Q4. However, new software license sales are expected to be flat to 10% (5%-15% cc), or approximately $1.50-$1.65bn, in line with consensus and bracketing our $1.61bn estimate.”
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