Oracle’s (ORCL) Fusion Of Strong Cloud And On-Premise Software Demand Forms Excellent MayQ Numbers
1:59 pm Tuesday, June 14th, 2022
Fresh off its first earnings miss in over five years, Oracle (ORCL) crushed EPS expectations in Q4 (May) while delivering much higher sales upside than in the prior period. The company’s cloud services lead overall growth, highlighted by another quarter of over 20% growth in Fusion applications. FY23 is also shaping up to be another year of exceptional cloud growth, bolstered by ORCL’s acquisition of health information services and hardware supplier Cerner, which closed last week.
Headlines numbers were strong in Q4. Adjusted earnings were flat yr/yr at $1.54 but came in well ahead of consensus and $0.12 higher than the midpoint of ORCL’s prior guidance. Revs of $11.84 bln represented a 10% jump yr/yr in constant currency, exceeding the company’s previous forecast of +6-8% and marking the highest organic growth in over a decade.
ORCL’s cloud business led the charge, leaping 22% yr/yr to $2.5 bln. Back-office cloud applications, including Fusion ERP and NetSuite ERP, climbed 24% yr/yr, boasting annualized revs of $5.4 bln. For the full year, total cloud services grew 22% yr/yr to $10.8 bln.
Non-GAAP operating margins remained relatively stable at 47%, translating to just a 2 pt dip yr/yr, but a 1 pt improvement sequentially. FY22 margins fell 1 pt yr/yr to 46%. ORCL mentioned last quarter that FY22 margins should grow 1 to 2 pts from pre-pandemic levels of 44%, so its margins were in-line with expectations.
Looking ahead, ORCL is feeling quite upbeat about its business momentum, illuminated by its solid Q1 (Aug) and FY23 outlook. ORCL expects adjusted EPS of $1.09-1.13 in Q1, mostly in-line with analyst estimates. Meanwhile, its revenue growth forecast, including Cerner, of +20-22% yr/yr in constant currency smashed consensus. Additionally, for FY23, ORCL anticipates its cloud business to continue to shine, predicting over 30% growth yr/yr.
ORCL’s combination of cloud and on-premise software in the quarter enhanced its excellent numbers. Its acquisition of Cerner is also significantly boosting headline figures going forward. For example, total cloud growth in Q1 is estimated to grow 25-28% yr/yr and 47-50% when including Cerner. On the downside, the $28 bln Cerner purchase did add just under $16 bln of additional debt. The good news is that ORCL plans to reduce its debt load while still buying back stock at current levels. In Q4, the company repurchased $600 mln of its shares (~0.4% of total shares outstanding). Management also does not think the dividend will be impacted either.
Overall, ORCL’s Q4 results demonstrate that its business is accelerating. It also shows that enterprise demand has not pulled back in any meaningful way, an encouraging sign for the tech sector. Furthermore, with macroeconomic factors being a primary contributor to weak quarterly numbers or guidance by many tech names recently, it is refreshing to see ORCL shine despite the current environment.
