Oracle (NYSE:ORCL) has announced the availability of its Application Development Framework Mobile. The solution allows for the creation of more complex mobile software. It enables developers to create enterprise applications for mobile environments. In this article, I want to show how the rising global mobile application market will enable Oracle to make good sales with the new product. This factor will help Oracle to improve its price multiples
How will Oracle's fundamentals show improvement? The mobile app stores are expanding on the global level. A research firm, MarketsandMarkets, acknowledges this fact. In its report, the firm stated that the global mobile applications market was $6.8 billion in 2010 and will be worth $25 billion by 2015. Oracle's new product will benefit from the trend. This will boost the company's revenues and improve its price multiples.
Oracle's improvement is bound to occur. In the third quarter, its software license updates and product support revenues were up 7% year-on-year to $4.3 billion. The division made operating income to increase 1% year-on-year to $3.3 billion. Earnings per share were $0.52, up 6% compared to same period in 2012.
"Both operating cash flow and free cash flow were at record levels for a quarter three, with operating cash flow of $13.7 billion over the last twelve months," said Safra Catz, Oracle CEO.
In the second quarter, software license updates and product support revenues were up 7% to $4.3 billion. New software license and cloud software subscription revenues were up 17% to $2.4 billion. Net income was up 18% year-on-year to $3.1 billion.
"New software license sales and cloud subscriptions grew 18% in constant currency," said Catz. "Strong organic growth in our software business coupled with a focus on the highly profitable engineered systems segment of our hardware business enabled a Q2 non-GAAP operating margin of 47%."
Oracle's Mobile Applications
Oracle has developed a number of software to respond to the booming mobile applications market. The products have enabled enterprises to cope with the dynamic nature of the mobile environment. Oracle developed ADF Desktop Integration to enable developers to create spreadsheets that allow consumers access to critical business data. The company's JDeveloper simplifies the development of Java-based applications. The company has also created the Oracle ADF Faces Rich Clients components to ease the work of its customers.
The just-released Oracle ADF Mobile allows developers to create solutions for a single target and extend enterprise applications to mobile devices. "Oracle ADF Mobile is the only cross-platform solution based on Java, the standard for enterprise software that enables application development for both iOS and Android devices - offering Java developers an easy way to become mobile developers," said Chris Tonas, vice president Application Development Tools, Oracle.
Oracle needs the software so that it can reap benefits from the rising mobile applications market. This is important as Oracle strives to gain a head start over its competitors.
Looking at the revenues of the company in its recent reports, we notice that the software division showed growth year-on-year. It is clear Oracle's revenues have been improved by the division compared to the previous year. So the company can be said to be making progress.
With a price to earnings ratio of 16.05, Oracle is trading reasonably, given that its gross margin is 80.84%. The new product will increase the company's revenues, improve its earnings per share and make Oracle's $19.75 billion debt sustainable.
With a gross margin of 80.84%, compared with 22.32 for Hewlett Packard (HPQ) and 45.62 for IBM (NYSE:IBM), a price to earnings ratio of 16.05, compared with none for Hewlett Packard and 14.12 for IBM, Oracle is doing very well. Hewlett Packard's Enterprise Mobility Platform leverages network assets to help enterprises that want to deploy their mobile apps. Oracle's new product enables the company to compete with Hewlett Packard. IBM Worklight provides a mobile application structure to enable accelerated delivery of innovative solutions for consumers. Oracle's new product will negate any advantage to IBM and deliver innovations that avoid the use of unpopular scripting languages.
Based on the performance of Oracle's software license updates and the revenue prospects arising from the use of mobile applications, we can say Oracle's new product will improve the fundamentals of the company. Looking at its price multiples in relation to others, we can say Oracle is a buy for now.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.