The last time shares of Oracle Corporation (ORCL) traded at these levels, it was during the dot-com era. This time is different because Q3/2017 quarterly results show solid revenue and net income growth. Even after the ~ 7 percent weekly gain (Mar 13 – 17), the stock is worth just 16.3x forward earnings.
Competition in the cloud is a potential headwind for the database software company. For now, though, cloud software (“SaaS) is growing at a rapid clip. Revenue from SaaS and PaaS totaled $1 billion, up 73% Y/Y. Only the total cloud and on-premise software revenue of $7.4 billion lagged. The unit’s revenue grew 4% Y/Y.
On its conference call, the company affirmed software sales in the cloud business. By comparison, its competitors are seeing slower growth:
“Our pivot to the cloud is now clearly in full strength. We continue to see outside growth rates in our cloud business, especially when compared with our key competitors who're all seeing slowing growth. But more importantly, the increase in revenue from our cloud business has overtaken new software license business decline on an annual basis.”
Oracle’s business transformation is like that of Adobe. Its cloud revenue will exceed software licensing revenue. Expect an expansion in profit margin, assuming expenses and R&D costs do not go up.
Though Oracle’s stock is still cheap on a P/E basis, investors may want to wait for a dip before investing in the company.