Oracle Results Nicked by Customer Issues
We are maintaining our fair value estimate for the wide-moat firm.
Wide-moat Oracle (ORCL) is one of the first companies to report a nearly full quarter that incorporates COVID-19 impact, so its results could provide a window into what we can expect from the approaching earnings season. In the final quarter of its fiscal 2020, postponement of deal closure and some delay in customer payments were the key headwinds though management noted its underlying business remains strong. Management took time to note that its faster growing, more profitable businesses have started to make up a majority share of revenue. This has been a key risk, in our view, as some of the reported gaudy growth numbers for various segments have not matched the overall top line results. We are still waiting for signs of this inflection point that returns growth above the low single digits and are maintaining our fair value of $50.
In the quarter, Oracle reported total revenue of $10.4 billion, down 6% year over year, compared with a guidance midpoint of $11.4 billion. Non-GAAP EPS of $1.20 was on the low end of its range of $1.20 to $1.28. Oracle’s previous earnings call was just one week after the pandemic-induced lockdown occurred in the U.S. and we would downplay the numbers they provided at the time, given the events that have since transpired. The key issues in the quarter were the postponing of deals from customers in segments most impacted by the pandemic and that deal closure had slowed as the quarter progressed. Founder Larry Ellison continues to trumpet the company’s Autonomous Database offering with a highlight of the quarter being the launch of “Exadata Cloud@Customer”, which allows customers to run Autonomous Database on their own data centers.
Looking ahead, Oracle gave first quarter revenue guidance with a midpoint of $9.2 billion, flat year-over-year growth. Non-GAAP EPS is expected to be between $0.84 and $0.88. Management declined to give guidance for full year fiscal 2021 given the uncertainty the pandemic has created.
|Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.|
John Barrett does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.