Oracle surprises to the upside; return to glory (and growth) days?

Posted Mar 21st 2007 7:19AM by Georges Yared
Filed under: Before the Bell, Major Movement, Earnings Reports, Internet, Blogs, Columns, Oracle Corp (ORCL)

Oracle Corp. (NASDAQ:ORCL) reported its fiscal third quarter earnings after the close, comfortably beating estimates for both the top line and the ever-important bottom line. Oracle reported $.20 per share of earnings versus $.14 per share last year. The 35% increase in earnings beat Street estimates by 2-4 cents. It was a stellar quarter and gives the company momentum going into the almighty May 31 fiscal 4th quarter.

The revenues reported for the quarter were $4.41 billion. versus $3.47 billion last year. The very good news was new license sales equaled $1.39 billion, up 27% from last year's 3rd quarter.This provided terrific visibility for future maintenance and upgrade revenues.

Oracle gave May 31st, 4th quarter guidance of 5-15% new license growth from last year's 4th quarter. Oracle explained that 70% of the February quarter revenues came from the slower growth database business, and the rest from the elusive business of applications.

Oracle has made over 30 acquisitions, spending over $20 billion the last three years, all on business applications.

As I wrote yesterday, Oracle has not had a very successful research and development effort on its own, so it has had to resort to acquiring the applications businesses. This is critical for Oracle if it plans to show investors sustainable growth. The last 4-5 years have been single-digit percentage overall growth and the stock performance has reflected as much.

To drive shareholder value and happiness, ORCL must integrate its acquisitions, retain the key people from the acquired companies and leverage its sales force deeper into accounts. To maximize growth and maintain its high margins, the applications business must post up 20% growth in license sales which leads to the generous maintenance and upgrade cycles. They have it nailed in the database side and it appears to be coming together on the applications side. If their strategy works the race will be a two horse race with giant SAP of Germany.

Oracle may return to its glory days of being a high growth company....

Georges Yared is the author of "Stop Losing Money Today" and "Baby Boomer Investing"

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