Seeking Alpha
Long/short equity, special situations, value
Profile| Send Message| ()  

Shares of Oracle Corporation (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 (MSFT) and 5.4 times for TIBCO Software, Inc. (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.

Source: Oracle: Decent Earnings Report Amidst Tight Cost Control