Oracle reported adjusted earnings of 69 cents a share, a penny above consensus expectations and at the high end of the company's guidance. Revenue rose 3% to $9.6 billion for the quarter, above forecasts.
Software and cloud revenue rose 5% to $7.3 billion. Cloud software-as-a-service (SaaS), platform-as-a-service (PaaS) and infrastructure-as-a-service (IaaS) revenue rose 45% to $516 million. Hardware systems revenue rose 1% to $1.3 billion, Oracle said.
Shares were trading 8.3% higher to $44.58. Here's what analysts said.
Joel Fishbein, BMO Capital Markets (Outperform; $49 PT)
After three mixed quarters, Oracle posted a solid report. Software license was flat y/y CC, which continues to be below trend but didn't miss expectations while commentary suggested that the 12C cycle is starting to kick in. Cloud revenue continues to accelerate nicely (+41% y/y CC) although was slightly shy of expectations. Lower margins here could suggest that bookings-revenue conversion is taking longer than expected, but overall leading indicators such as bookings growth (140%+ y/y vs 54% in F1Q), bookings guidance ($1B+ new bookings in FY16), and customer additions support our bullish stance on Oracle's cloud business. Margins were in line. While clearly trends are improving and we continue to be positive on database cycle and strong cloud growth, there's probably not enough here to provide conviction-changing evidence to bulls or bears and expect contention around some divergence between management commentary and reported results to persist.
EPS numbers come in slightly due to currency but would have been essentially unchanged without the headwind. We still think revenue growth can accelerate, which in combination with below-trend valuation keeps us positive on ORCL as the best name in megacap software.
Jack Andrews, D.A. Davidson (Buy; $50 PT)
Spanning back over the last eight quarters, FY2Q15 marks the first time that ORCL's revenue has beat expectations and the third time its EPS has beat expectations.
Reiterating BUY rating and raising price target. Our FY2015 revenue estimate moves to $39.687 billion in revenue (previously $40.006 billion) while our non-GAAP EPS estimate declines to $2.95 (previously $3.05), solely due to currency. Given Oracle's continued success in the cloud, we are decreasing the probability of the bear case in our probability-weighted, scenario-based discounted cash flow analysis. Our $50 price target (previously $47) equates to a P/E multiple of 16.3 our calendar 2015 EPS estimate.
Robert Breza, Sterne Agee (Neutral; $41 PT)
ORCL reported better than feared Q2 revenue and EPS results slightly ahead of consensus estimates; however, conservative Q3 revenue guidance of 0%-4% is unlikely to inspire investors as new software license growth continues to be cannibalized by the transition from perpetual revenues to subscription/cloud-based revenues. We maintain our Neutral rating and $41 PT.
Brian Schwartz, Oppenheimer (Perform)
Oracle's 2Q results beat consensus, driven by growth in hardware systems and better expense management (sales and marketing expense declined y/y). Additionally, 2Q cloud bookings grew 150% y/y (up from 54% last quarter), validating how rapidly the cloud re-platforming trend is permeating the enterprise market. However, Oracle's cloud transition is increasing pressure on its financial model as seen by: 1) fourth straight quarter of decelerating TTM FCF growth (no growth this quarter); 2) consensus EPS numbers being cut despite 2Q beat; and 3) third straight quarter of flat to declining operating margins y/y with 3Q guidance assuming this negative trend continues.
Bottom Line: We think 2Q results heighten ORCL's model uncertainty while dampening EPS growth, thus challenging the case for future multiple expansion.
Raimo Lenschow, Barclays (Overweight; $50 PT)
Oracle reported Q2 FY15 results, which we view as a step in the right direction, given FX headwinds and the mixed Q3 in software so far. Revenue and profitability, bolstered by Micros but negatively impacted by FX, beat consensus estimates, while cloud traction was strong. We expect shares to react positively, since investors may be more comfortable with the lessening impact of sales execution issues, hardware concerns, and attractive valuation.
We think that guidance (issued in constant currency) was potentially conservative, specifically in the Cloud businesses. Although prudent in our view, it seems as though there could be some upside to the dollar growth rates implied, based on the positive commentary around cloud customer growth, expectations for strong bookings going forward, and no signs of significant weakness in this area.
We think strong buybacks and dividends should also continue to attract longer-term investors, as the company continues to return a high percentage of free cash flow.
TheStreet Ratings team rates ORACLE CORP as a Buy with a ratings score of A. TheStreet Ratings Team has this to say about their recommendation:
"We rate ORACLE CORP (ORCL) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its solid stock price performance, revenue growth, reasonable valuation levels, expanding profit margins and growth in earnings per share. We feel these strengths outweigh the fact that the company has had sub par growth in net income."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
- ORCL's revenue growth trails the industry average of 27.3%. Since the same quarter one year prior, revenues slightly increased by 2.7%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- The gross profit margin for ORACLE CORP is currently very high, coming in at 82.31%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 25.40% is above that of the industry average.
- ORACLE CORP's earnings per share improvement from the most recent quarter was slightly positive. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, ORACLE CORP increased its bottom line by earning $2.39 versus $2.26 in the prior year. This year, the market expects an improvement in earnings ($3.04 versus $2.39).
- You can view the full analysis from the report here: ORCL Ratings Report