The third quarter of the business hardware and software giant, Oracle (ORCL, Financial) was indeed a mixed one when it got declared on Tuesday, March 17, from the company headquarters. Analysts were taken by surprise as the tech giant reported good numbers with respect to its cloud business, which actually contributed only a portion to the entire revenue earned during the quarter. However, the earnings call gave a lot of insight on the upcoming bright future of the tech company. Let’s quickly catch up with the major highlights of the quarter which left investors happy at the end of the conference.
The quarter numbers were mixed, yet exhibited a true shine
Net income of Oracle fell 2.7% to $2.5 billion or $0.56 a share, from $2.57 billion, or also $0.56 a share, a year earlier. As the company exercised share buyback during the quarter the per-share earnings remained flat as the number of shares trading in the market saw a sharp decline.
However, Oracle reported adjusted third quarter earnings (excluding stock compensation and other items) that stood at $0.68 a share, meeting the Street expectations that were hooked to the same figure. Meanwhile, revenue that took a surge when compared to the same quarter of last year standing at $9.33 billion missed slightly on analysts’ consensus of $9.46 billion as revenue for the quarter.
The slight miss could be attributed to the strengthening of the dollar without which Oracle could have achieved a lift in total revenue by 6% when measured on a constant currency basis. The strengthening of the U.S. dollar is expected to continue in the upcoming quarters, which could dampen its growth and margins in the next quarters as well.
The company’s revenue from the newer “cloud” software offerings grew almost 29% in the quarter that ended February 28, thereby offsetting the decline in sales in traditional software licenses and the hit from the strong dollar. In fact, sales of traditional software licenses fell nearly 6.9% from a year ago and this signifies that the cloud offerings would become the basis of future growth for the company.
Management remains optimistic on cloud, attacks rival directly
As reflected in the quarter results, the management has reiterated that they are on track to achieve sales of $3 billion by the end of 2015 in the cloud line of business. The company has forecasted growth in cloud between 5-8% at constant currency basis for the fourth quarter, while its traditional hardware business is expected to weigh negatively in the range of negative 2%-8% down.
The cloud business which comprises software-as-a-service (SaaS) and platform-as-a-service (PaaS) is currently the focus area and Oracle’s CEO, Mark Hurd, stated during the earnings presentation that the company estimates to sell over $300 million of new SaaS and PaaS annual recurring revenue in the fourth quarter. This way, it might be able to sell more new SaaS and PaaS business in the coming quarter than any of its rivals, though the company has given special emphasis on competing with Salesforce (CRM, Financial) and emerging a winner in the cloud business.
During the earnings call, CTO Larry Ellison mentioned the challenge that Oracle plans to post in the cloud domain for competitors like Salesforce- “We are well on our way to selling over $1 billion of new SaaS and PaaS business in calendar 2015… Salesforce.com has announced that it also expects to add about $1 billion of new SaaS and PaaS business this year. So it's going to be a close race who sells more in the cloud this year, us or them. Stay tuned.”
Dividend increase a gift for investors
Though the entire report card was not a show of fabulous numbers for the company, it did improve its dividend, which has increased 25% during the quarter from $0.12 to $0.15 a share. The improvement of dividend reflects the confidence that Oracle hopes to sustain from its shareholders who urge to stay invested in the stock on the long run. At the new dividend rate, the company would collect close to $700 million a year in dividends.
The increased dividend is likely to be paid to the shareholders on April 28, having record date of April 7.
Parting words
“I think our hyper-growth in the cloud comes as a big surprise to a lot of people…” the CEO said during the earnings call.
And this appears to be true as the Street analysts are now recalculating their expected numbers for the fourth quarter based on the opportunities Oracle foresees in the cloud business line. Let’s stay tuned and keep an eye on how the cloud business aids Oracle to post better revenues in the near future, though currency conversion headwinds and other challenges are expected to stay in the upcoming quarters.
