Boston, MA 06/26/2013 (wallstreetpr) – Shares of Tech Giant Oracle Corporation (NASDAQ:ORCL) fell more than 9%, immediately after it announced its quarterly results. The main reason for such fall is said to be its quarterly sales which missed analyst’s consensus targets for the second straight quarter. Also, the weak macro economic conditions have taken a toll and have hit IT spending.
To add to its woes, Oracle’s constant currency license growth rate of 2% was far below the street’s estimate of 5-7%, and the August quarter guidance implies organic license growth of negative 7% to positive 1%.
But investors need not worry about what the future holds for Oracle as its fundamentals remain intact. The following points explain my view.
Firstly, there are high possibilities that Oracle delivers a growth rate of 2%, which shall seem favorable when compared to other technology mega-vendors, only after it gets through what is expected to be another rough quarter reporting season.
It has also been noted by BMO Capital Markets analyst Karl Keirstead that Oracle’s overall IT spending has shown no signs of improvement, out of industry related problems. Thus the inhibitions that investors have that Oracle is hit by company specific factors could evaporate and they could be more willing to hold on to Oracle’s share as a part of its defensive play.
If one takes a closer look at the financials, it could be seen that its maintenance revenues of $4.4 billion were in line, and the deferred revenue breakdown too doesn’t hint at any material degradation in Oracle’s maintenance renewal rates.
Also, if we break down the global demand, it was Asia – Pacific which was 7% down at the back of broad economic weakness, along with weak growth in emerging countries such as Brazil. On the contrary, license sales growth in America was up by 4% and 5% in the EMEA region, which is quite decent under the current circumstances.
Another positive for Oracle is responding positively to street’s demand for increased shareholders return. Oracle doubled its quarterly dividend to 12 cents, adding another $12 billion buy-back program. This will further help Oracle increase its shareholder’s returns and do away with excess resources.
The only sore point was its total revenue, which seemed to grow by 0.3% to $ 10.95 billion from $ 10.92 billion a year ago. Adjusted revenues for the quarter increased by a 0.1% to $ 10.96 billion. This was far lower than analysts estimated of $11.2 billion for its fourth quarter.
To conclude, the valuation multiple still looks pretty decent. For fiscal 2014, the street is expecting earnings of $2.92 per share, up 9% from last year and implies a P/E multiple of 10 times.
