Understanding Oracle's Growth Position

NEW YORK ( TheStreet) -- There is no shortage of critics when it comes to assessing the market position of database giant Oracle ( ORCL).

With rivals such as Salesforce.com ( CMR) stealing the hearts of growth investors, it seems the value that Oracle still presents today is suddenly being ignored. The company is now considered irrelevant.

But Oracle's fundamentals as well as its extensive reach within the market tells a different story. With its $32 billion in cash and innovative expertise, the company continues to prove that it has no plans to concede its business to anyone. Investors would be wise to take notice.

A Balanced First-Quarter Start

In its most recent quarter, $8.2 billion in revenue was not enough to excite investors. But it did represent a modest 3% annual growth. Net income arrived at $2 billion, or $0.41 per share, representing a profit increase of 11% year-over-year. On a non-GAAP basis, the company produced $3.6 billion in operating income, or 6% higher from the year ago quarter. This was helped by the company's 2% improvement in operating margin, which arrived at 44%.

The company continues to see increasing demand for its products and services, particularly in the cloud, which produced $222 million in revenue. Likewise, software licenses and cloud subscription revenue grew 11% to $1.6 billion.

As a sign of how well the company's model is working, Oracle continues to generate tons of cash, while consistently managing its expenses.

Oracle also announced record levels of free cash flow -- $13.4 billion over the past four quarters. Similarly, during that span, operating cash flow increased to $14 billion, of which, $5.7 billion was generated in the just completed quarter. As a sign of its commitment to returning value to shareholders, Oracle announced it purchased over 100 million shares of its stock during the quarter.

This brought its stock repurchase total to 300 million shares, or $8.2 billion worth over the past 12 months. In terms of guidance for the coming quarter, Oracle expects to earn between 59 cents to 63 cents per share on a non-GAAP basis, exceeding last year's mark of 54 cents per share.

Moving Forward

While Wall Street may wish to focus on the revenue miss, the overall report suggests this was a good quarter regardless. Likewise, Wall Street continues to overlook that Oracle understands its market better than its rivals. Though the popularity of the software as a service (SaaS) business has propelled Salesforce.com and others to new heights, it seems many continue to dismiss Oracle's dominance within that space.

Although competition from IBM ( IBM), Microsoft ( MSFT) and SAP ( SAP) certainly exist, Oracle has been able grow its cloud products such as Exadata, Exalogic and Exalytics by 100% during the quarter. These will be the major drivers of the company's growth for many years to come.

Also working in Oracle's favor now and in the foreseeable future is the rate at which companies are accumulating "big data" as they strive to position themselves for cloud efficiency.

This places Oracle at an advantage above its rivals because of its dominance in the area of analytics or data manipulation. These are areas where it competes effectively with F5 ( FFIV) and EMC ( EMC).

Bottom Line

I have always liked Oracle and I don't see any reason to be concerned here solely based on its revenue miss. Astute investors understand the macro environment has had a lot to do with the results in the quarter. Though the stock has since rebounded from its previous lows of the year, I would still be a buyer at current levels -- particularly as growth projections suggests a fair value of $35 per share. It also helps that the company pays a handsome dividend.

At the time of publication the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.
Richard Saintvilus is a private investor with an information technology and engineering background and has been investing and trading for over 15 years. He employs conservative strategies in assessing equities and appraising value while minimizing downside risk. His decisions are based in part on management, growth prospects, return on equity and price-to-earnings as well as macroeconomic factors. He is an investor who seeks opportunities whether on the long or short side and believes in changing positions as information changes.