Oracle Gets PeopleSoft Push - TheStreet

Updated from 6:12 p.m. EST

Oracle

(ORCL) - Get Report

on Monday beat third-quarter earnings expectations by a penny a share, increased revenue by 23% to $3.09 billion and raised guidance for the rest of the year.

Oracle accomplished at least one major goal this quarter -- growing new license revenue in its core database business by 12%, including a much stronger showing for its most advanced database products.

But the success of its $10.6 billion acquisition of

PeopleSoft

was less clear, in large part because PeopleSoft contributed revenue only for two seasonally weak months. Moreover, Oracle's relatively feeble applications business actually shrank by 7% year over year, when PeopleSoft's $31 million contribution is backed out.

As a result, investors seemed ambivalent about the stock after hours, taking it down 21 cents, or 1.7%, to $12.28. Oracle closed regular trading with a loss of 16 cents, or 1.3%, to $12.49.

On a GAAP basis, which includes various items related to the company's acquisition of PeopleSoft, the database giant earned $540 million, or 10 cents a share, compared wiht last year's earnings of $635 million, or 12 cents a share. Excluding those costs, the company earned $814 million, or 16 cents a share.

Revenue on a GAAP basis was $2.95 billion, while total non-GAAP revenue increased 23% to $3.09 billion for the quarter. Wall Street was expecting a 15-cent-a-share profit on revenue of $3.074 billion.

"We are extremely pleased that Q3 non-GAAP net income was up 25%, and non-GAAP earnings per share was up 28%," said Safra Catz, Oracle's co-president and interim CFO. "Given our strong Q3 results and the improved outlook for Q4, we are raising our non-GAAP EPS guidance for the full fiscal year 2005 from $0.62 to $0.64-$0.65."

Wall Street was anticipating a profit of 63 cents a share on sales of $3.87 billion.

Probably the most closely watched number was PeopleSoft's contribution to application licenses. Estimates by Wall Street analysts varied widely, with some as low as $15 million or $20 million and at least one as high $90 million. The number came in at $31 million, bringing the total application license revenue to $152 million, up from $140 million a year ago.

Oracle CEO Larry Ellison admitted that PeopleSoft's contribution was on the light side, but said that PeopleSoft had "bled its pipeline dry" in its previous quarter as it attempted to fight off Oracle's takeover. Additionally, there was some disruption to Oracle's application software sales staff when the two companies were integrated. It will take several quarters to get past those growing pains, Ellison said.

It's worth noting, though, that Oracle's total application revenue, which includes ongoing maintenance and support, was $851 million, an increase of nearly 48%.

Getting its money's worth out of PeopleSoft will be key to boosting Oracle stock, which is off 8% this year, amid some feeling that Oracle paid too much for its rival -- and may have paid too much for

Retek

(RETK)

. Oracle

snagged Retek Tuesday morning after a brief bidding war with

SAP

(SAP) - Get Report

over the retail-industry software maker.

At current prices, Oracle is trading at about 17 times 2006 earnings estimates, which many analysts -- but not all -- consider too low. UBS analyst Heather Bellini, for example, whose company has a banking relationship with Oracle, has a price target of $18.50 a share; Richard Williams of Garban Institutional Equities says Oracle's earnings have been inflated by currency fluctuations and has a target of $9 per share. His company does not have a banking relationship with Oracle.