Oracle - All Time Highs Remain In Reach As Long-Term Potential Remains Good

| About: Oracle Corporation (ORCL)
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Shares of Oracle (ORCL) rose up to 2.5% in after hours trading on Tuesday. The provider of enterprise software systems and cloud-based solutions reported its second quarter results for its fiscal 2013 after the market close.

Second Quarter Results

Oracle reported second quarter revenues of $9.09 billion, up 3% on the year before. Revenues came in ahead of analysts consensus of $9.01 billion.

Revenue growth was driven by a 10% increase in software revenues, coming in at $6.65 billion. New software licenses and cloudware subscription revenues rose 17% to $2.39 billion. The strong performance of the software business was offset by a 16% decline in hardware revenues, coming in at $1.32 billion.

Operating income rose 12% to $3.47 billion, as total operating expenses fell by 1%. Oracle reported a 9% decline in taxes, which resulted in a 18% increase in net income, coming in at $2.58 billion.

Earnings per share grew even faster as a result of Oracle's $10 billion share repurchase plan. Earnings per share rose by 23%, coming in at $0.53 per share. Non-GAAP earnings per share rose 18%, coming in at $0.64 per share. Earnings beat consensus estimates by three cents on a non-GAAP basis.

Over the past year Oracle repurchased nearly 350 million shares for a total consideration of $10.2 billion. On average, Oracle repurchased its shares around $29 per share.

President Mark Hurd commented on the results, "Q2 performance was strong and broad based as all geographies reported double digit revenue growth in new software license and cloud subscriptions. Applications, middleware and database all had double-digit growth in new software license and cloud subscriptions, with applications leading the pack with growth of over 30%. Our cloud offering of HCM, CRM and ERP applications plus the Oracle database and Java platform services is the strongest and most complete in the industry. Already approaching a one billion dollar run rate, our Cloud business will become much bigger over time."


For the current third quarter, Oracle guides for earnings per share of $0.51-$0.55 per diluted share. On a non-GAAP basis, earnings could come in between $0.64 and $0.68 per share.


Oracle ended its second quarter with $33.7 billion in cash, equivalents and marketable securities. The company operates with $19.8 billion in short and long term debt, for a net cash position of $13.9 billion.

For the first six months of its fiscal 2013, Oracle generated revenues of $17.3 billion. The company net earned $4.6 billion, or $0.94 per share. The company is on track to report full year revenues of $37-$38 billion. Oracle could earn around $10.5 billion for the year, or around $2.10-$2.20 per share.

Factoring in a 2.5% jump in after hours trading, the market values Oracle at $162.5 billion. This values operating assets at roughly $148.6 billion. Operating assets of Oracle are valued at roughly 4.0 times annual revenues and 13-14 times annual earnings.

Oracle pays a quarterly dividend of $0.06 per share, for an annual dividend yield of 0.7%. The company recently accelerated its first three dividends of 2013 into 2012. With the acceleration, Oracle avoids that its shareholders possibly would have to pay an increase in taxes on their received dividends, if the fiscal cliff discussions fail.

Some Historical Perspective

Year to date, shares of Oracle have risen some 30%. Shares rose from levels around $25 in January to highs of $33 in October. Shares fell back to $30 in recent weeks, currently trading at year highs of $33.

Over the past decade shares have roughly tripled. Shares steadily gained ground and have doubled from their lows of $15 at the start of 2009. Shares set an all-time high of $36 in 2011 and trade within sight of those levels.

Between 2009 and 2013, Oracle grew annual revenues by some 60% from $23.2 billion to an estimated $37.5 billion this year. Net earnings almost doubled from $5.5 billion to an estimated $10.5 billion over the same time period.

Investment Thesis

Oracle is one of the large technology companies which has fared relatively well this year. Other major technology companies including Cisco Sytems (CSCO), Hewlett-Packard (HPQ) and Intel Corporation (INTC) have dramatically underperformed shares of Oracle and the wider market.

Oracle continues to report organic growth in a difficult macro-environment. Oracle uses its massive cash balances and strong operating cash flow to expand its future operations by acquiring promising companies. At the same time, the company repurchases its own shares, thereby boosting earnings per share in the short term. Over the past year, the company repurchased for over $10 billion of its own shares, more than 6% of its shares outstanding.

Oracle has focused on the cloud business where its competes with the likes of (CRM) and German-based SAP (SAP). Both competitors have been on a acquisition spree over the past year to boost their presence in the field. SAP bought Ariba (ARBA) earlier this year and last year it bought SuccessFactors (SFSF).

Oracle has been shopping as well. Last year, Oracle bought RightNow (RNOW), the cloud-based customer service firm, for $1.5 billion. The deal was followed by the $1.1 billion deal with Endeca. Earlier this year, Oracle bought human-resource company Taleo (NASDAQ:TLEO) for $1.9 billion. The company announced multiple smaller deals in the meantime.

With all these acquisitions the company enhances its presence in big data, data analytics, cloud-based solutions and human resources. As such the company continues to boost its presence in fast developing and growing industries.

In September I last took a look at the company's prospects. At the time I conlcuded that I remain a long term believer of the stock. Yet I pointed out that the prospects for short term gains had diminished after shares rose 15% in the three months leading upto the first quarter results.

Shares have slightly ticked up from that level three months ago. Today I reiterate my stance. The long term appeal remains, but do not expect spectacular returns in the short run.

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.