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Oracle: Is It a Good Long-Term Buy?

March 23, 2014 | About:
tyokunbo

tyokunbo

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The revenue from Oracle’s (ORCL) hardware products grew 8% to $725 million. It was the first increase since the company’s $5.6 billion purchase of Sun Microsystems in 2010. Oracle manufactures hardware systems. It licenses database and middleware software. It provides clients with rights to unspecified software product upgrades. It also offers public and private cloud computing solutions. In addition, it provides consulting services in IT strategy alignment from its headquarters in Redwood City, California. It was founded in 1977.

Financials
Oracle’s sales execution improved significantly in most regions during the last quarter. Total revenues for its full year grew 2% to more than $7 billion. Its non-GAAP operating margin for the full-year 2013 was an all-time high of 47%. Oracle’s earnings per share grew 11% during the period. In the last quarter, Oracle purchased almost 85 million shares for a total of $2.8 billion. It repurchased nearly 350 million shares for a total of $11 billion in the full year. It is restarting its quarterly dividend earlier than previously planned with a 100% increase to its quarterly dividend.

Positive Outlook
Though it reduced its growth rate guidance by 1% going forward, the company expects new software license and cloud subscription revenues to range from 0 to 8% in a constant currency. It expects its total revenue growth on a GAAP and non-GAAQP basis to range from 3% to 6% in constant dollars. The company’s earnings per share on a GAAP basis are expected to be somewhere between $0.42 and $0.45 in constant dollars. On a non-GAAP basis, the earnings per share are expected to range from $0.56 to $0.59.

Initiatives
Oracle has been rolling out its own cloud-based products in the past few years. It has also acquired small cloud companies like Responsys, Inc. Due to this strategy, it has been able to compete favorably with rivals who had been offering products at prices that often undercut Oracle.

In the past year, Oracle has also reorganized its sales department. Since cloud computing solutions are becoming popular with corporate buyers, Oracle has had to reorganize its operations to fit with the new reality. With its reorganization, Oracle can now benefit from a sector that has high margins and long-term contract potentials.

Head to Head
Oracle’s competitors include IBM (IBM), Salesforce.com (CRM), and many smaller companies. However, Oracle’s reorganization is geared to make it outperform its rivals. Consequently, Oracle has taken a considerable market share from IBM in the engineered systems segment. Compared to its competitors, Oracle is moving very fast to gain an increased market share in the cloud sector.

International Expansion
Oracle has had a tremendous international growth since it was founded. As of today, the company has a global presence in over 90 countries. It also has deployments in over 145 nations. Its database and software products have penetrated all countries where there is an IT presence.

Wings in Asia
Oracle’s strategy is to enter some of the South Asian countries like India and Philippines to access their skilled technical resource pool at lower costs. Oracle’s development centers in the region employ more than 10,000 people. Its partnership with Neusoft is to drive a revenue growth in China’s healthcare sector. In addition, Oracle is bringing next-generation solutions into Sri Lanka.

A Glance at South America
Oracle plans to deploy its own data centers in Brazil to help customers migrate to its cloud services. This is the first stop in a wider South American expansion strategy for Oracle. The market in Latin America has continued to expand. Oracle hopes to expand its facilities in the continent to drive its revenue growth.

Conclusion
Oracle is starting to show improvements in its core software business. Its engineered systems segment is experiencing a spectacular growth. Taking another look at the company’s last report, one can see why Oracle is a good long-term buy.


Rating: 3.0/5 (2 votes)

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Comments

Dr. Paul Price
Dr. Paul Price premium member - 4 months ago

What do you think ORCL is worth 12-18 months out?

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