Investor's Business Daily, March 20th, 2007
Oracle's drive to lead in business software appears to be gaining steam, as it reported better-than-expected profit and sales for its fiscal third quarter ended Feb. 28.
Late Tuesday, Oracle ORCL said its per-share profit, excluding one-time items, rose 32% from the year-earlier quarter to 25 cents. It said sales rose 27% to 4.41 billion. Analysts polled by Thomson Financial expected 23 cents and $4.33 billion.
Oracle reported a 27% gain in new software license revenue, a key measure of future sales growth, to $1.39billion. Analysts had expected $1.3 billion. For the current quarter, Oracle's guidance met views. It expects per-share profit, excluding items, of 34 cents, up 17%, and sales to rise 11% to 15%.
Oracle shares were up about 4% after hours, after it released its latest results.
"Oracle had a very strong quarter, with outstanding performances across all product lines and in all geographies," Oracle President Safra Catz said in a conference call.
Oracle has been on a buying spree, shelling out more than $20billion to acquire 30 rivals since 2004. The list includes PeopleSoft, Siebel Systems and Retek. On March 1, Oracle said it would pay $3.3 billion for Hyperion Solutions, a maker of business intelligence software.
All these deals make it hard for investors to gauge the company's underlying growth in software applications, says Robert Stimson, an analyst with WR Hambrecht. But Stimson praised the Hyperion purchase in a recent research note.
"Investors may want to begin to add to their positions as we believe (a sales) backlog is building and the addition of Hyperion will allow for easy compares on a (year-over-year) basis," Stimson wrote. He rates the stock as hold.
Oracle, the No. 1 database maker, has taken an acquisition strategy in its pursuit of SAP SAP, the leader in business applications software. SAP has opted for an organic growth path and is looking to sign up more midsize and small-business customers.
On Tuesday, Oracle said its new license revenue for applications rose 57% last quarter vs. 7% for SAP in its rival's most recent quarter.
But the company's acquisition strategy has saddled it with the cost of supporting many product lines, says Kevin Buttigieg, an A.G. Edwards analyst. He, too, has a hold rating on the stock.
"As they get bigger, it becomes harder to show significant growth," Buttigieg said. He says many investors want more organic growth.
"On the positive side, Oracle has done a good job of cutting general and administrative costs at the acquired companies, and turning that into positive earnings," he said.
One cost of spending so much on acquisitions is that money can't be used for research and development of new products, says Charles DiBona, an analyst with Sanford Bernstein. He also rates the stock market perform, or hold.
"The acquisition strategy still needs to be proven out for Oracle," DiBona said. "The (lost) opportunity costs are quite substantial, but they're just being ignored."
In a separate tactic for growth, Oracle is pushing into the market for open-source software. Oracle's new "Unbreakable Linux" effort provides low-cost services for an open-source operating system that's distributed by Red Hat RHAT.
Oracle needs to build up a presence in such large markets in order to continue growing, Buttigieg says.
"This move into open source takes Oracle into a large category of software where they've never been before," he said.
Copyright 2007 Investor's Business Daily, Inc.
