EUR 850.00 For Business Accounts Only

Morningstar | Database Rebounds Improves Oracle’s Long-Term Outlook; Raising FVE to $50. See Updated Analyst Note from 19 Jun 2019

Wide-moat Oracle's fourth quarter earnings report was largely in line with our expectations and slightly exceeded management guidance. The major highlight was re-acceleration of Oracle’s core database business, driven in part by customer adoption of Autonomous database. The rebound in databases confirms our belief that Oracle warrants a wide moat. We are raising our fair value estimate to $50 per share from $46, mostly due to the time value of money as we roll our valuation model. Shares appear modestly overvalued to us today.

Infrastructure ecosystem revenue was $21.1 billion for the fiscal year and up 7% in the fourth quarter. Database license was a major contributor with growth in the mid-teens. Autonomous database introduced less than two years ago, is showing early signs of contribution with Autonomous related license growth at 21%. Autonomous trials in the quarter increased to 1,666 from 1,333 last quarter, indicating continued developer interest in the new offering. Database growth from new and existing customers contributed to the strong performance. 20% of customers signing up for Autonomous database were brand new to Oracle, while 40% of the workload running on Autonomous are net new to Oracle.

Strong growth in Oracle’s SaaS and application offerings continued to offset its shrinking business lines. Full year revenue grew 3% in constant currency and was down less than 1% in USD. SaaS ERP and HCM reached nearly $3 billion for the year, up from $2.2 billion last year, while Fusion apps were up 32% for the year after growing 62% last year. NetSuite (up 28% for the quarter), Fusion HCM (up 25% in the quarter), and Fusion ERP (up 44% for the quarter) continued to grow strong. Meanwhile, hardware and services segments declined by 7% and 5% year over year, respectively. We believe the growth in database and cloud is an early indication that Oracle is not fated for secular declines in revenue growth long term.

For the quarter, Oracle posted non-GAAP operating margins of 47%, its highest in 5 years, driven by higher margin Fusion and NetSuite segments. Full year non-GAAP operating margins were 44%, flat year over year, with management expressing confidence it can exceed its best ever full year non-GAAP operating margin of 47% as revenue growth accelerates. We think further margin improvement is achievable as revenue shifts toward cloud (88% gross margin) and away from hardware (63% gross margin) and services (12% gross margin).

Turning to guidance, management is expecting 0% to 2% top line growth in USD with non-GAAP EPS of $0.80 to $0.82 in USD, a roughly 15% increase year over year. Guidance includes currency headwinds of 1% to revenue and $0.01 to non-GAAP EPS. For the full year, management is expecting total revenue growth greater than last year in constant currency (3%) and double-digit non-GAAP EPS growth.