Oracle (ORCL, Financial) is one of the most preferred software companies by an industry that is looking for various application software solutions. The company is also renowned for its various innovative database products that provide optimum database solutions to industries. Over the years, the company enriched its product portfolio of application software and system software’s and attaining a firm grip on the global database market. Oracle is also a leader in the ERP (Enterprise Resource Planning) software solution with SAAP being its closest competitor in the ERP market. The company has been focused on the cloud technology and is constantly recording revenue growth from Software-as-application-Services (SaaS), Platform-as-application-Service(Paas) and Infrastructure-as-application-Services(IaaS)
Quarter Overview
The company started its new fiscal year on a high note, much to the delight of its investors. Last week it released its first quarter result and was firing all cylinders. The consolidated revenue was up by 3% year over year, to record $8.6 billion as compared to $8.38 billion in the same quarter last year. The drivers for this revenue growth were cloud platforms and various subscription services of the company. The revenue source for the company is from various segments. All segment recorded year over year growth except hardware segment of the company which was down on year over year basis.
Segmental Revenue
| Segment | Revenue Q1-2014) | YOY |
| Software & Cloud | $6.6 billion | 6% (UP) |
| Saas & PaaS | $337 million | 32%(UP) |
| Infrastructure-as-a-service (IaaS) | $138 million | 26% (UP) |
| Hardware systems | to $1.2 billion. | 8% (DOWN) |
If we observe the above statistic, we can observe the Oracle has been recording growth from its cloud enables services. Moreover majority of these services are also on rental/subscription basis which can help in attaining sustained revenue for Oracle.
Non -GAAP operating income was up by 2% year over year, to record $3.0 billion and non-GAAP net income was up 2%, to record $2.8 billion as compared to $2.76 billion in same terms last year. Non-GAAP operating income was up 2% to $3.8 billion, and the non-GAAP operating margin was 44%. EPS also recorded growth of 4% year over year to $0.62.
Operating cash flow on ttm (trailing twelve month) was up by $0.19 billion, to record $15.4 billion as compared to $14.85 billion last year.
Growth Areas
The company has been focused on the cloud based service which has been the prime growth drivers for the company. In totality, overall cloud business increased by 30% for the company. This resulted in the cash flow of $6.7 billion in the second quarter; this is record cash flow for the company in any of the past quarters.
“We are increasing our cloud services growth rate while simultaneously delivering record levels of cash flow,” said Oracle CEO, Safra Catz.
“Our internally developed Fusion cloud applications business grew at a rate of nearly 200% in the quarter,” said Oracle CEO, Mark Hurd. “
Acquisitions to leverage growth
Oracle has always been known for various acquisitions, this seems to be a strategic policy of the company to broaden its customer base with a richer product portfolio. Since Oracle is a cash rich company, it always helps the company with acquisition which helps in the revenue growth and also competitive advantage over its competitors.
Last week on Sept-2104, the company declared that it has signed an agreement to have control over “Front Porch Digital”. Front Porch Digital, provides various services pertaining to big data and content storage solutions that involves migration and management of content on a large scale. Front Porch Digital has over 550 clients spread globally, from diversified industries like BBC, Discover Communication, A&E Television and many more.
Furthermore, in the current month Oracle also confirmed the acquisition of “Micros System”. This acquisition enables Oracle to provide high end solution solutions to Hospitals, Hospitality Industries and Retail companies.
Payouts
The company declared a dividend of $0.12 per share, all payment to be completed by end of October-2014. Under its share repurchase program, the company declared that it has allocated additional $13.0 billion for buyback of share..
Guidance
For the second quarter of the fiscal 2015, Oracle anticipates further growth in revenue. Strong demand of cloud services and acquisitions will influence this anticipated growth. MICROS, that was acquired in the current month is anticipated to contribute around $14 million in revenue for the second quarter. Software and cloud revenues are expected to achieve a growth in the range of 3% to 6%. SaaS and Paas revenues is forecasted to attain gain in the range of 39% to 44%, while IaaS revenue growth is expected to be in the range of 39% to 43%.Non-GAAP earning is expected to be anywhere in between $0.66 to $0.7 per share. Hardware segment is an underperforming segment of Oracle; it can decline by 10% in the second quarter.
Conclusion
The company is achieving high growth rate from the cloud enabled services and platforms. The product portfolio of the company is one of strongest portfolio in the industry as compared to its competitors.
The future for cloud systems is bright, and this will always help software giants like Oracle on its journey to be number one cloud service provider globally. Currently it is the second largest cloud solution provider. The operating cash flow of the company is also recording growth with a strong balance sheet. I would suggest a buy for Oracle for investors looking for long term returns and growth.
