Oracle Is At A Material Inflection Point

Oracle Corporation ORCL “delivered strong F3Q17 results and the on-premise license to cloud transition continues to accelerate. We think this trend can continue, and expect to see meaningful earnings growth in FY18 for the first time in three fiscal years,” BTIG’s Joel Fishbein said in a note. He maintained a Buy rating with a $47 price target.

At An Inflection Point

The analyst expressed optimism regarding Oracle’s combination of robust cloud revenue growth and earnings leverage.

Fishbein mentioned it has been a challenging time for the company, given the transition it's undergoing, which has proved to be a headwind to the results, although there have been signs Oracle is at a meaningful inflection point.

“Overall, we think accelerating cloud growth should continue to offset the decline in new software license sales and that we could see double-digit EPS growth in FY18,” the analyst stated.

Related Link: Can Oracle Keep Up Its Cloud Revenue Growth In The Third Quarter?

Beat Results

Oracle reported its quarterly results ahead of expectations, with cloud SaaS/PaaS revenues growing 86 percent year-on-year and IaaS revenues growing 19 percent year-on-year, on a constant currency basis.

The EPS for the quarter came in at $0.69, beating the consensus expectations.

However, new software license revenues sustained their decline, falling 15 percent year-on-year, while cloud solutions picked up momentum, suggesting the transition was progressing smoothly.

“Quarterly results have been uneven in the past due to ongoing license revenue weakness, but it appears that a corner has been turned and we expect cloud revenue to be larger than new software license revenue next year,” Fishbein went on to say.

The analyst noted Oracle’s Cloud pipeline continued to be robust, with healthy renewal rates, as well as several large IaaS deals in the offing.

Image: By Raysonho @ Open Grid Scheduler / Grid Engine (Own work) [CC0], via WikimediaC