Oracle Rises to 13-Year High as Forecast Tops Some Estimates

Dec 19, 2013 4:10 pm ET

(Updates with closing share prices in second paragraph.)

Dec. 19 (Bloomberg) -- Oracle Corp., the largest maker of database software, rose to a 13-year high after forecasting quarterly sales and profit that may top some analysts’ estimates as it seeks to sell Web-delivered software to fuel growth.

The shares jumped 5.8 percent to $36.60 in New York, the highest closing price since October 2000. Revenue in the current quarter will climb 2 percent to 6 percent, and profit before some costs will be 68 cents to 72 cents a share, Oracle said yesterday. Analysts predicted sales growth of 4 percent to $9.35 billion and 70 cents in profit.

Oracle and other enterprise-software providers are in the middle of a broad transition to software delivered via online subscriptions, sapping revenue and profit growth for traditional suppliers. Chief Executive Officer Larry Ellison has revamped his flagship database and has spent $50 billion to acquire about 100 companies over the past decade, seeking to make Oracle relevant to businesses delivering cloud software.

“While it has been a very bumpy road for Oracle over the last year, it appears the fruits of its labor on both the product and sales-force expansion strategy are starting to pay dividends,” Daniel Ives, an analyst at FBR Capital Markets & Co., wrote in a research note today. He has the equivalent of a buy rating on the shares.

Oracle stock has gained 9.8 percent this year, compared with a 27 percent gain in the Standard & Poor’s 500 Index.

Cloud Bookings

Bookings of cloud software rose 35 percent in the fiscal second quarter, which ended in November, showing that acquisitions such as Eloqua Inc., BigMachines Inc. and RightNow Technologies Inc. are attracting customers, Oracle co-president Mark Hurd said in an interview. Subscription sales will take two to three years to yield enough recurring revenue to match that of a traditional software license sale, he said.

“Our database business had a very good quarter,” said Hurd. “In cloud it’s a little different. This is the first indicator -- our bookings.”

Second-quarter revenue climbed 2 percent to $9.28 billion, while profit excluding certain items was 69 cents a share, the company said in a statement yesterday. That topped the average estimate of analysts for $9.18 billion in sales and earnings of 67 cents, according to data compiled by Bloomberg. Net income in the second quarter fell 1.1 percent to $2.55 billion.

Gravel Road

New software license and cloud subscription sales, a closely watched indicator of future revenue, were little changed at $2.38 billion, and will increase 1 percent to 11 percent in the third quarter, Oracle said.

Oracle, based in Redwood City, California, is poised to post two straight years of less than 5 percent software-license growth, according to Brent Thill, an analyst at UBS AG.

“They’re on a gravel road right now -- it’s not smooth,” said Thill, who has a buy rating on Oracle stock. “The pure- play software-as-a-service vendors are accelerating their momentum.”

Oracle is the second-largest maker of business applications behind SAP AG and entered the computer server market with the 2010 acquisition of Sun Microsystems. Hardware sales were little changed at $1.32 billion during the quarter.

SAP shares advanced 2.7 percent to 61.02 euros.

Competing Aggressively

In September, Oracle enhanced its database to take greater advantage of large amounts of computer memory to speed data analysis and online commerce. The 12c database isn’t yet padding sales and will probably “ripple through our user base” over the next year and a half, Hurd said.

Ellison said on a conference call yesterday that Oracle will be competing aggressively in the market for computing power sold as a service and be “price-competitive” with Amazon.com Inc., Microsoft Corp. and Rackspace Hosting Inc.

“You have a company with entrenched businesses and durable cash flow,” said Brad Zelnick, an analyst at Macquarie Capital USA Inc., who has the equivalent of a hold rating on the shares. “Valuation-wise it looks very attractive even with the top line under stress.”

--Editors: Reed Stevenson, Jillian Ward