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ii view: reason for Oracle stock's surge to record high

Helping datacentre providers as well as global corporations arrange and find data. We assess prospects for this Nasdaq listed database software giant.

10th September 2024 11:51

by Keith Bowman from interactive investor

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First-quarter results to 31 August  

  • Revenue up 7% to $13.3 billion
  • Adjusted earnings up 17% to $1.39 per share
  • Quarterly dividend unchanged at $0.40 per share

ii round-up:

Database software firm Oracle Corp (NYSE:ORCL) has detailed earnings which beat Wall Street forecasts, driven by demand for the Nasdaq company’s cloud data services.

First-quarter revenue rose 7% to $13.3 billion, led by a one-fifth jump for cloud service to $5.6 billion, fuelling a 17% increase in adjusted earnings year-over-year to $1.39 per share. Analysts had forecast $1.32. Oracle also announced a new database services deal with cloud datacentre provider Amazon (NASDAQ:AMZN) Web Services (AWS).

Oracle shares jumped 8%in after-hours trading following the results, reaching a new all-time high above $153. They had come into these results up by a third year-to-date. Fellow database specialist SAP SE (XETRA:SAP) is up by a similar amount, while the tech-heavy Nasdaq Composite index is up 14% in 2024. 

Oracle sells its own database software to datacentre providers and companies around the world, as well as having more than 160 of its own datacentres in operation or under construction.

Cloud software licensing and on-premises licensing sales climbed 7% year-over-year to $870 million. Hardware related sales rose 5% from a year ago to $655 million. 

The Texas headquartered company expects overall revenues for the current second quarter to climb by between 8% and 10%, in line with Wall Street forecasts. 

A quarterly dividend of $0.40 per share is unchanged from the previous quarter. 

ii view:

Started in 1977, Oracle came to the stock market in 1986. Today it employs more than 155,000 people, aiding over 400,000 customers and including companies such as Microsoft Corp (NASDAQ:MSFT), Google owner Alphabet Inc Class A (NASDAQ:GOOGL), Deutsche Bank AG (XETRA:DBK) and Uber Technologies Inc (NYSE:UBER). Pioneering the first Structured Query Language (SQL) database, Oracle has grown both organically and via more than 150 acquisitions costing around $110 billion. Geographically, the US accounted for 55% of revenue over its last financial year, with the UK, Germany and Japan all notable at around 3-4%, and other countries making up the balance of just over a third. 

For investors, the tough economic outlook including still elevated interest rates for many corporate customers, cannot be ignored. Costs generally for businesses remain heightened. A forecast dividend yield of around 1.1% is less than the 3.3% forecast for rival International Business Machines Corp (NYSE:IBM), while the ongoing difficulty in valuing growth businesses and current concerns for tech valuations warrant thought. 

On the upside, the broad corporate drive toward artificial intelligence (AI) within their databases is likely to offer continued demand support for Oracle's services. A wide diversity of both customer types and geographical location exists. Growth by acquisition over time has been successfully achieved, while investment in products and services leaves R&D spend at over $80 billion since 2012. 

For now, and despite ongoing risks, exposure to both datacentres and AI services is likely to leave this giant of the software world firmly of interest to long-term growth investors.  

Positives: 

  • Product and customer sector diversity
  • Own investment programme

Negatives:

  • Acquisitions come with risk
  • Currency moves can impact

The average rating of stock market analysts:

Buy

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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