Oracle's Multi-Cloud Strategy and Strong Quarterly Results Spark Investor Optimism

Oracle Post-Earnings: Multi-Cloud Strategy To Pay Off, Big Time - Upgrade To Buy (ORCL)

Looking for a portfolio of ideas like this one? Members of Tech Contrarians get exclusive access to our subscriber-only portfolios. Learn More " Oracle (NYSE:ORCL) kick-started its fiscal year 2025 yesterday, reporting 1QFY25 results and outlook, causing the stock to shoot higher in extended trading on a top and bottom-line beat in addition to an announcement of a partnership with Amazon's (AMZN) AWS. We're upgrading the stock to a buy after yesterday's results as we now think our thesis of "near-term challenges for Oracle's top-line growth due to softer enterprise, service provider, and government spending" has come and passed; the stock has performed relatively in line with the S&P 500 since our downgrade to hold back in October. We're now more optimistic on two accounts. The first is eyeing a potential (and very likely) Fed cut to interest rates later this month that should support macro recovery for 2025 and, in turn, ease the softer enterprise, service provider, and government spending issue. The second is ORCL's multi-cloud strategy, which sweeps under its umbrella: multi-cloud agreements with Microsoft, Google, and AWS, increased remaining performance obligation or RPO, and higher FY25 capex. We see tailwinds in place that should enable higher revenue growth in FY25 for ORCL and drive outperformance against the S&P 500. For the quarter, ORCL reported revenue up 8% Y/Y to $13.31B, ahead of expectations of $13.23B, and adjusted EPS of $1.39 versus the expected $1.32. Net income increased to $2.93B, growing from $2.42B in the year ago quarter. Cloud Services is the largest business for the company, making up 79% of total revenue, as shown in the snapshot of the earnings release below. The company reported that cloud services and license support revenue increased by 11% Y/Y to $10.5B, with management citing "strategic cloud applications, autonomous database, and OCI" as the drivers. OCI refers to Oracle Cloud Infrastructure, which showed impressive consumption revenue growth, up 56%, as "demand continued to outstrip supply." Management's commentary around appetite for its second-generation cloud offerings, OCI, coupled with the Google, Microsoft, and AWS partnerships, lead us to believe there is more upside surprise potential for ORCL's Cloud revenue in 2025. On Monday, the company announced the launch of Oracle Database@AWS, which will "provide customers with a unified experience between Oracle Cloud Infrastructure (OCI) and AWS, offering simplified database administration, billing, and unified customer support." This will also allow customers to connect their enterprise data in their Oracle database to applications running on AWS, providing more scale to ORCL's business. ORCL's remaining performance obligations are proof of healthy momentum, with RPO surging 53% for the quarter to $99B; this is impressive due to two things: Last quarter, the RPO was up 44% to $98B, so we're seeing sequential RPO growth. Secondly, the sequential increase comes in contrast to the usual seasonal decline. Here's what management had to say about the second point: "While we typically see a seasonal decline of RPO in Q1, we signed several large deals this past quarter, resulting in a sequential increase in RPO compared to the decline that we typically see based on our experience over the previous five years." We think the enormity of ORCL's backlog and pipeline showcases its momentum into 2025, supported by a healthier interest rate environment and lower stress on enterprise budgets. A lot of the RPO growth for the quarter circles back to the cloud, with Cloud RPO growing by more than 80%. The last time ORCL saw sequential upside on RPO was due to the Cerner acquisition, while this quarter, it was OCI (three-quarters worth of it). This leads us to believe there is more upside potential from OCI, in spite of concerns over OCI margins as management scales the business through its multi-cloud agreements. ORCL is definitely preparing to spend for the said demand coming through; the company spent $2.3B on capex for the quarter and "expects the fiscal year 2025 CapEx will be double what it was in fiscal 2024." The higher capex forecasted for FY25 is important because it eases any question marks about how ORCL plans to achieve its set goals for Q2 and FY25. For next quarter, management is expecting total revenue growth of 8% to 10% and total cloud revenue growth of 24% to 26%. The reason the higher capex can enable better results is that it'll allow for the expansion of OCI capacity to match the 52% RPO cloud growth. ORCL stock remains fairly valued, in our opinion. On a P/E basis, the stock trades at 26.3x C2024 versus the peer group average of 63.1x and its ratio of 19.3x in our December note. The stock trades at 8.2x C2024 EV/Sales compared to the group average of 8.0x and revised up from its previous ratio of 6.9x when we last wrote on the stock in December. We advised investors to "wait for evidence of a recovery in enterprise, service provider and/or government before stepping back into the stock in 2024," and we think the signs are here with the announced agreements with hyperscalers plus the anticipated Fed cuts. The following chart outlines ORCL's valuation against the peer group average. Wall Street has shifted to a more bullish sentiment on the stock since our December note. Of the 35 analysts covering the stock, 21 are buy-rated, and the remaining are hold-rated. This compares to 17 buy-ratings and 16 hold-ratings in December. The sell-side price targets are set for a median target of $172 and a mean of $163, while the stock trades at $158. This translates to a 3% to 9% potential upside. The following charts outline ORCL's sell-side ratings and price-targets. We're more positive on ORCL heading further into FY25. ORCL's RPO sequential growth, higher capex forecasts, and announced partnership on Monday lead us to believe this quarter's results were not a one-time kind of hit but a shift to the next leg of growth for 2025. We expect ORCL to be better positioned to realize its AI infrastructure ambitions in 2025, particularly due to its position with larger players, such as Amazon. We see green shoots for ORCL in 1H25 and would recommend investors put ORCL on their radar for next year.

Oracle Earnings: No Crystal Ball Needed, Still In Growth Mode (NYSE:ORCL)

Looking for more investing ideas like this one? Get them exclusively at Deep Value Returns. Learn More " Oracle (NYSE:ORCL) is back on the front foot, with fiscal Q1 2025 delivering eye-popping guidance. Arguably, its RPO figure being up 53% y/y stole the limelight for this quarterly report. But beyond that, there was a ''well-argued'' narrative that Oracle's cloud offering is now the biggest part of its overall business and growing rapidly. All in all, this makes paying 22x next year's non-GAAP EPS an attractive valuation and worthwhile considering. Let's jump to it. Oracle is a global technology company that provides a wide range of products and services to help businesses improve their operations. Its key offerings include cloud infrastructure (''OCI'') and databases which cater to various industries. Oracle's innovations aim to enhance business productivity and efficiency, incorporating advanced features such as embedded AI. The company's partnerships with major cloud providers like AWS, Google Cloud, and Microsoft Azure further expand the reach of its cloud services, particularly its renowned Oracle Database. Oracle's fiscal Q1 2025 cloud business has shown strong growth, with its total cloud revenue up by 22% in the quarter, driven by both its SaaS and IaaS segments. Cloud database services grew 23%, while OCI consumption revenue surged by 56%. The company's cloud remaining performance obligation (''RPO''), a leading measure of future revenue, grew more than 80%, reflecting robust demand for longer-term cloud contracts, while its total RPO was up 53% y/y. What's more, Oracle noted in the earnings call its ambitious plans to double its capital expenditure to meet increasing demand and expand its cloud regions globally, pointing to sustained near-term cloud growth and strong prospects. However, Oracle faces significant competition in the cloud space from giants like AWS, Google, and Microsoft, especially as these companies also enhance their cloud offerings. The lower margins associated with its OCI business, although improving with time is expected to dampen Oracle's near-term profitability margins versus its traditional legacy offerings. Additionally, Oracle's rapid growth in demand has led to supply constraints, which the company is addressing through increased automation and larger data center buildouts, but these logistical issues still represent a key headwind and are expensive to roll out. Given this balanced background, let's now discuss its fundamentals. Oracle is no longer a fast-growing company. And that's the appeal of this setup. This is a company that was perceived by investors to simply be ticking along. What investors didn't expect to see is that Oracle's RPO increased by 53% y/y, with 38% of its RPO being recognized in the next twelve months. This allowed Oracle to confidently guide that it would grow by at least double digits in the next twelve months. For my part, I've implied this to mean around 11% topline growth, but I wouldn't be surprised to see that the figure that ultimately gets reported is higher than this. Given this renewed growth rate, let's now think about its valuation. As an inflection investor, you must always have a firm grasp of a company's balance sheet. Oracle holds about $75 billion of net debt. For me, this consideration keeps me out of this name. Even if I'm bullish on a company, what stops me in most cases is the shape of its balance sheet. I like to invest in companies where their balance sheet is an asset and not a liability to the investment thesis. That being said, there's still a lot to like about Oracle. Case in point, the high-end of fiscal Q2 2025 EPS guidance (as reported), is expected to be up 12% y/y to nearly $1.50. Given Oracle's momentum, together with the $1.39 of non-GAAP EPS just reported, this gives the sense that Oracle's non-GAAP EPS this year could reach close to $6.35 per share, which is higher than analysts' current estimate of $6.27 non-GAAP EPS per share. Consequently, this means that investors are being asked to pay around 24x this year's non-GAAP EPS. Now, if we presume that as Oracle's non-GAAP EPS continues to grow at 11% y/y into next year, this could put Oracle on a path towards $7.05 of non-GAAP EPS. In sum, this leaves Oracle priced at 22x next year's non-GAAP EPS. Now, astute readers would be quick to opine, that's largely the same multiple that Oracle has been trading at for some time, see below. What's the upside then? Here's the thing, Oracle is now growing its topline at a quicker pace than investors previously expected. So, you get a highly profitable enterprise, that is well-positioned in the growing cloud sector, and with more growth than expected. That's generally a very attractive setup that is worth thinking considering. Paying 22x next year's non-GAAP EPS for Oracle is a compelling investment because the company has firmly positioned itself as a major player in the rapidly expanding cloud sector. With double-digit growth, a surge in its cloud business, and strategic partnerships with industry giants like AWS, Google, and Microsoft, Oracle is on a clear path to sustained revenue and earnings expansion. While Oracle's balance sheet does carry around $75 billion in net debt, the company's operational momentum and improved cloud margins make this valuation reasonable, particularly as demand continues to outstrip supply.

Oracle - Impressively strong quarterly results. A buy? | Investing.com UK

Oracle (NYSE:ORCL) was once again able to impress in the last quarter with strong cloud growth. The multi-cloud strategy is paying off. Cloud Infrastructure revenue rose by an impressive 45% to USD 2.2 billion. Cloud services are now Oracle's largest business area and continue to drive both growth and profit margins. At USD 13.307 billion, total revenue was slightly above expectations. Earnings per share exceeded forecasts by around 5% at $1.39. Free cash flow rose by 22% to a remarkable $5.124 billion. This consolidates Oracle's position among the leading technology companies. New partnership with Amazon Oracle announced a closer collaboration with Amazon (NASDAQ:AMZN) Web Services (AWS). In the future, Oracle Cloud Infrastructure will also be accessible via AWS. This multi-cloud strategy will enable customers to use Oracle databases and technologies not only on AWS, but also via Microsoft (NASDAQ:MSFT) Azure and Google (NASDAQ:GOOGL) Cloud. Oracle sees this as an important growth factor, particularly for the database sector. 'Oracle operates or is building 162 cloud data centres worldwide,' said Larry Ellison, Chairman and CTO of Oracle. 'Our largest data centre has a capacity of 800 megawatts and will contain a large number of NVIDIA (NASDAQ:NVDA) GPU clusters to train massive AI models. In the past quarter, 42 new cloud GPU contracts were signed, worth $3 billion. Soon, our customers will be able to use the latest Oracle database technology in the cloud of every major provider.' Revenue generated by actual use of Oracle Cloud Infrastructure increased by an impressive 56%. Oracle plans to continue to invest significantly in data centres and high-performance NVIDIA GPU clusters to meet the growing demand for artificial intelligence. Outlook Oracle is planning double-digit revenue growth for the 2025/26 financial year. The cloud business is expected to grow by 23 to 25%. Group-wide revenue growth of 7 to 9% is expected in the coming quarter. Due to high demand, investments are even expected to double this year. And the stock also acknowledged the company's figures and outlook with a strong increase in after-hours trading. We believe this is a sustainable increase and not just a flash in the pan. Anyone who is not yet invested has missed a great opportunity. We already prepared our customers for an upcoming relevant bottom on 2 August 2024: The stock entered the purple box we had forecast exactly and reversed sharply higher. Now, of course, it has been given a boost by the strong quarterly results. What happens next? We think that the stock can continue to move up overall. However, another pullback is to be expected shortly, which can probably be used very well for a purchase. We will keep an eye on this and publish corresponding analyses on our website so that our customers can prepare themselves optimally for the next buying opportunity. You can get more free analysis on our channel on YouTube. You can access all analysis on our website by clicking on the link above next to my profile picture. Disclaimer/Risk warning: The information provided here is for informational purposes only and does not constitute a recommendation to buy or sell. It should not be understood as an explicit or implicit assurance of a particular price development of the financial instruments mentioned or as a call to action. The purchase of securities involves risks that may lead to the total loss of the capital invested. The information provided does not replace expert investment advice tailored to individual needs. No liability or guarantee is assumed, either explicitly or implicitly, for the timeliness, accuracy, appropriateness or completeness of the information provided, nor for any financial losses. These are expressly not financial analyses, but journalistic texts. Readers who make investment decisions or carry out transactions based on the information provided here do so entirely at their own risk. The authors may hold securities of the companies/securities/shares discussed at the time of publication and therefore a conflict of interest may exist.