Investor's Business Daily, September 20th, 2007
Oracle sailed smoothly through the recently choppy economic waters, on Thursday reporting profit and sales for its fiscal first quarter that beat analysts' views.
"It was an all-around spectacular quarter for us," Larry Ellison, Oracle's chief executive, said in a conference call with analysts. Oracle also slightly boosted guidance for this quarter.
Excluding special items, Oracle ORCL said it earned 22 cents a share for the quarter ended Aug. 31, up 22% from 18 cents a year ago and a penny above the average estimate of 26 analysts polled by Thomson Financial. The No. 2 maker of business software behind SAP SAP said its net profit rose 23% to 16 cents.
The database leader said sales rose 26% to $4.53 billion; analysts had expected $4.34 billion.
Oracle ended the regular session up 1% to 21.04, its highest close since early 2001. Shares were up about 2% after hours, after the results were released.
The earnings may cheer investors worried about a slowdown in tech spending. Wall Street has feared the mortgage lending crisis might ripple out to techs, says Kirk Materne, a Banc of America Securities analyst who rates Oracle a buy.
"Given the uncertainty surrounding the U.S. economy, we believe software investors will look to Oracle's results (and) guidance to help gauge the impact of recent macro turmoil on enterprise spending," Materne wrote in a note last week.
The company said new software licensing revenue, an important measure of growth, rose 35% to $1.08 billion. That's the biggest jump in 10 years, Safra Catz, Oracle's chief financial officer, said in a statement.
On the call, Catz said the company expects sales to rise 18% to 21% this quarter, where analysts had expected 17%. She expects earnings, minus items, of 26 or 27 cents a share vs. analyst views of 26 cents. "The strength in the quarter was very broad across all product lines," she said.
The results show Oracle continues to meld the dozens of acquisitions it's made in recent years to broaden its software portfolio to compete better with SAP and others. Analysts say it can be tough to integrate so many acquisitions.
But Oracle has been very efficient in this effort so far, says Bob Stimson. The WR Hambrecht analyst has a hold rating on the stock.
"Their M&A plan is going solid," Stimson said. He said Oracle, like other big U.S. firms, has benefited from a weak dollar when converting overseas sales. Oracle said the currency exchange added 4 percentage points to revenue and a net 1% to operating income growth.
In June, Oracle paid $495 million for Agile Software, which makes software to manage the development of new products. In April, Oracle paid $3.3 billion for Hyperion Solutions, a maker of business intelligence software.
The Hyperion deal should give Oracle more access in selling to chief financial officers and controllers. That presents "an interesting long-term opportunity," according to analyst Materne.
"While quickly integrating Hyperion will be challenging, we continue to believe the deal made strong strategic sense," he wrote.
Another fan of Oracle's M&A strategy is Cowen & Co. analyst Peter Goldmacher. He rates the stock outperform, or buy.
"We continue to believe that Oracle's strategy to consolidate software vendors in certain big-spending vertical (industries) is a timely and well thought-out response to end user trends towards buying more products from fewer vendors," he wrote Wednesday.
On the other hand, it's tough to assess how well Oracle is doing in application sales due to uncertain revenue comparisons from its many acquisitions, says Bernstein Research analyst Charles DiBona. He rates the stock market perform, or neutral. Oracle reported a 65% year-over-year jump in applications licensing revenue, which it said was more than triple SAP's rate.
