Oracle: Decent Earnings Report Amidst Tight Cost Control

| About: Oracle Corporation (ORCL)

Shares of Oracle Corporation (NASDAQ:ORCL) traded largely unchanged in after-hours trading on Thursday. The enterprise software company reported first quarter results for its fiscal 2013.

First Quarter Results

Oracle reported first quarter revenues of $8.18 billion, down 2.3% on the year. Excluding the adverse impact of a strong US dollar, revenues would have increased 3% on the year. Software revenues rose 4% to $5.7 billion. Hardware revenues fell by 19% to $1.4 billion, while service revenues fell 6% to $1.1 billion. On average, analysts expected revenues to come in at $8.45 billion.

GAAP operating income rose 7% to $2.9 billion, with net income up 11% to $2.0 billion. GAAP earnings per share rose 15% from $0.36 last year to $0.41 this year. Non-GAAP earnings per share rose 11% to $0.53, in line with analysts expectations. In constant currencies, earnings would have been three cents higher on both a GAAP and non-GAAP basis.

CEO Larry Ellison commented on the results:

"A little more than a week from now we will announce lots of enhancements to the Oracle Cloud. There are more CRM, ERP and HCM applications as a service, and more Oracle database, Java and social network platform services."


For the second quarter of its fiscal 2013, Oracle guides for GAAP earnings per share of $0.45-$0.49. Non-GAAP earnings per share are expected to come in between $0.59-$0.63, ahead of analysts consensus of $0.59. Revenues are expected to increase between 0 and 4%, below the consensus estimate of 4.7%.

The company did not guide for full year earnings. On average, analysts expect the company to earn $2.56 per share on a non-GAAP basis.


Oracle ended its first quarter with $31.5 billion in cash, equivalents and marketable securities. The company operates with $14.8 billion in short and long term borrowings for a net cash position of $16.7 billion.

For the full year of its fiscal 2012, the company generated revenues of $37.1 billion. It net earned $10.0 billion, or $1.96 per diluted share. The market values the firm at $158 billion, or $143 billion for the operating assets. This values Oracle at 3.9 times annual revenues and roughly 14 times annual earnings.

The valuation compares to a revenue multiple of 3.5 times for Microsoft Corporation (NASDAQ:MSFT) and 5.4 times for TIBCO Software, Inc. (NASDAQ:TIBX). These competitors trade at 16 and 42 times annual earnings, respectively.

Currently, Oracle pays a quarterly dividend of $0.06 per share, for an annual dividend yield of merely 0.7%.

Investment Thesis

Year to date, shares of Oracle have gained roughly 25%. Shares moved between $26-$30 during the first six months of the year, and started rallying in June to levels of $32 at the moment.

Over the past five years, shares have risen some 60%. Shares have risen from lows of $15 in 2009 to a peak around $35 in the beginning of 2011. At the same time, revenues rose some 60% from $23.3 billion in 2009 to $37.1 billion in 2012. Net income almost doubled from $5.6 billion to $10.0 billion over the same time period. Earnings per share almost doubled to $1.96, as the number of shares outstanding remained roughly equal.

In June of this year when Oracle published its fourth quarter results, I expressed my optimism about the future prospects. Shares rose some 15% from that point in time from $28 to current levels around $32.

The company's strong financial position allowed it to announce a $10 billion share repurchase program, boosting earnings per share further into its fiscal 2013. Furthermore, the company trades at a fair valuation and has two growth pearls for the future - the cloud business and the engineered system division.

I remain a long-term holder of the stock, although prospects for short-term gains have diminished after the recent 15% increase over the last three months.

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.