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Oracle (NYSE:ORCL) reported its results for the fourth quarter of the fiscal 2013. The company's total revenues were unchanged compared to the previous quarter. Oracle's stock plunged $2.99 to $30.22 as the investors worried about its ability to adapt to the changing demands of the software market. In this article, I will examine Oracle's fourth-quarter financials to determine whether or not the stock is an attractive investment.

Financial

Oracle reported a fourth-quarter GAAP net income of $3.8 billion, up by 10% on a year-on-year basis. The company's GAAP earnings per share were up by 17% to $0.80, while the non-GAAP earnings per share were up by 5% to $0.87. The GAAP total revenues were $10.9 billion, flat on a year-on-year basis. The GAAP new software licenses and the cloud software subscription revenues were up by 19% to $4.0 billion. The software license updates and the product support revenues were up by 6% to $4.4 billion. The company's GAAP operating income was up by 9% to $5.0 billion.

For the full-year 2013, the GAAP total revenues were $37.2 billion, flat compared to the year prior. The GAAP new software licenses and the cloud software subscriptions revenues were $10.3 billion, up by 4%. The GAAP software license updates and the product support revenues were up by 6% to $17.1 billion. The GAAP operating income was up by 7% to $14.7 billion. The GAAP net income was up by 9% to $10.9 billion. The GAAP earnings per share were $2.26, up by 15% compared to the year prior. The GAAP operating margin was 46%, down from 47% in the last quarter. The non-GAAP net income was down by 1% to $4.1 billion.

Oracle had been hurt by a continued drop in the sales of its hardware systems. But the revenues of the sector in the fourth quarter were $849 million, up from $732 million in the third quarter. The company's Exadata, Exalogic, Exalytics, SPARC SuperCluster, and its other engineered systems grew by 45%. Oracle sold over 1,200 engineered systems in the fourth quarter and over 3,000 during the year. The company's engineered system is now more than a third of its hardware business. Without the impact of the US dollar strengthening compared to the foreign currencies, Oracle's GAAP total revenues would have gone up 2%.

Valuation

Among the best news from the earnings report is that Oracle's hardware revenues improved on a quarter-on-quarter basis. Another bit of good news is that the company's annualized SaaS revenue was over $1.0 billion. This figure is larger than SAP and Workday (NYSE:WDAY) combined. The final bit of good news is that the company took a considerable market share from the IBM P Series with its engineered systems.

Oracle needed to turn in an impressive performance to maintain its momentum. Fortunately, the net income and the earnings per share showed an improvement on a year-on-year basis. Additionally, the decline in the new software sales was halted. These developments are important to Oracle, as it strives to gain a head start over its critics and its rivals.

When we take another look at the earnings report, we notice that Oracle showed a year-on-year improvement in many areas. It is clear that the company is making progress.

With a price to earnings ratio of 14.13, Oracle is trading cheaply, especially given that it has an impressive gross margin of 83.30%. The earnings report proves that Oracle can increase its software license division revenues and improve on its hardware sales.

Competition

How is Oracle performing in a relation with its rivals? With a price to earnings ratio of 14.13, compared with 13.49 for IBM, 17.15 for Microsoft (NASDAQ:MSFT), and 22.97 for SAP AG, and a price to sales of 4.21, compared with 2.12 for IBM, 3.68 for Microsoft, and 4.17 for SAP, Oracle does not appear to be doing badly. Microsoft, SAP, and IBM have the competing products in the engineered systems, cloud, and software segments. However, Oracle's earnings report shows that the company is still competitive.

Conclusion

There are risks involved with buying an Oracle share. Oracle's traditional approach of licensing software might not be pulling in its accustomed revenue. But looking at the earnings report, we can say the company is financially strong. Based on its price multiples, we can say HOLD Oracle for the long term.

Source: Has Oracle Shown Progress With Its Latest Earnings Report?