Oracle stock rocketed to an all-time high on Friday following impressive November quarter earnings that showed signs of progress in the company’s transition into a cloud-based software provider.
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Oracle stock rocketed to an all-time high on Friday following impressive November quarter earnings that showed signs of progress in the company’s transition into a cloud-based software provider.
In a February cover story, Barron’s outlined Oracle’s nascent business shift. The story made the case that the company was finding some early (and unappreciated) success pushing customers to adopt cloud-based versions of both its flagship database software and business applications such as enterprise resource planning and human capital management, while also building its own public cloud business to take on the likes of Amazon.com
‘s (AMZN) Amazon Web Services and Microsoft (MSFT) Azure. The story asserted that growth likely would accelerate, setting the stage for a substantial rally in the shares. While some analysts remain skeptical about the Oracle story, the November quarter results suggest that the company is a little further along in its transition than some investors had believed.
In the quarter, revenue grew 6%, ahead of Oracle’s guidance range of 3% to 5% growth, while non-GAAP per-share profits of $1.21 a share were up 14%, about a dime ahead of Street estimates. The company saw strong growth in cloud-based applications, with 35% growth in Fusion ERP, Oracle’s financial software for large businesses, and 29% growth in NetSuite ERP, which serves smaller companies. Oracle Cloud Infrastructure consumption growth rose 86%.
Oracle’s cloud business overall was up 22%, and CEO Safra Catz said the company expects growth to accelerate to the mid-20% range in that part of the business by the end of the year. Catz projected February quarter revenue growth, adjusted for currency, of 6% to 8%, a couple of percentage points better than what the Street had been projecting.
Some analysts pointed out that the strong quarter in part stemmed from 16% growth in the legacy-software-licensing business, but otherwise there wasn’t much to quibble about. Oracle also bought back $7 billion of stock in the quarter, and announced a new $10 billion repurchase authorization—over the last decade, Oracle has repurchased close to half of its shares outstanding, at an average price of less than half the current price.
Deutsche Bank analyst Brad Zelnick responded to the earnings report by raising his rating on Oracle shares to Buy from Hold, with a new target of $120, up from $110. He writes in a research note that Oracle reported “its cleanest quarter in several years, beating on all the right metrics,” and guiding above expectations for the rest of fiscal 2022. He notes that founder Larry Ellison on the post-earnings conference call asserted that the company’s applications business can be $20 billion five years from now, up from $5 billion today. And Zelnick also sees progress in the Oracle Cloud business, making it a legitimate alternative to Amazon, Microsoft and Alphabet ( GOOGL
).
“We believe Oracle deserves a premium multiple given credible exposure to what most investors agree is a generational opportunity in public cloud,” Zelnick writes.
Other analysts—bears and bulls alike—lifted price targets on the stock.
Citi analyst Tyker Radke keeps his Neutral rating on the stock, increasing his price target to $100, from $90, while conceding that he “clearly missed the massive re-rating” in Oracle stock over the last year. “While we’d argue the outsize buybacks have helped drive this, so have fundamentals, given the improved revenue trajectory, especially coming off years of underperformance,” Radke writes. “That said, we maintain our Neutral rating with accelerated revenue growth now in the numbers, tougher comps and valuation at a premium vs. peers.”
Cowen analyst J. Derrick Wood repeated his Outperform rating on the shares, lifting his target price to $115, from $96. “We think this quarter is a tipping point for all the skeptics out there and we see a structural growth acceleration phase here to stay for some time as motions around OCI and ERP are strengthening,” Wood writes. “Management confidence seems to be hitting new levels, backed by impressive guidance. In fact, if Oracle hits the high-end of Q3 guide, this would be the highest quarterly growth in 11 years. Many investors have been skeptical about Oracle’s ability to lift growth and this [quarter] should change a lot of minds.”
Oracle stock on Friday is trading 13.3% higher to $100.57, after reaching as high as $106.34—a record—earlier in the session. If the gains hold, this would be the stock’s first-ever close above $100 a share.
Write to Eric J. Savitz at [email protected]
