|
Oracle earnings surge
|
 |
September 14, 2000: 7:51 p.m. ET
Database giant's earnings driven by applications software, cost cuts
By Staff Writer David Kleinbard
|
NEW YORK (CNNfn) - Oracle Corp., the world's second-largest software company, reported on Thursday a fiscal first-quarter profit that exceeded Wall Street's predictions -- results driven by strong sales of its application software programs and reduced overhead costs compared with the year-ago quarter.
For the three months ended Aug. 31, Oracle reported net income of $501 million, or 17 cents a share, up from $237 million, or 8 cents a share, in the year-ago quarter. Analysts polled by earnings tracker First Call/Thomson Financial had expected Oracle to earn 13 cents a share during the quarter.
However, the $501 million in net income included $118 million in non-operating income, such as gains from the sale of investments and interest income.
Revenue rose to $2.3 billion from $2 billion a year earlier. Analysts had expected Oracle's first-quarter revenue to be between $2.2 billion and $2.3 billion.
While Oracle (ORCL: Research, Estimates) is best known for its market-leading database management software, the company's sales of non-database applications are driving its future growth, securities analysts say. In the fiscal first quarter, Oracle's sales of non-database software were lower than analysts had expected, while database sales grew faster than they had predicted.
First-quarter applications software sales increased 42 percent to $156 million, while database software sales grew 32 percent to $585 million. Total software license revenue was up 28 percent to $807 million, while total service revenue increased 8 percent to $1.5 billion for the quarter.
Stock price quadruples
In an interview on CNNfn's Moneyline News Hour Thursday, Larry Ellison, Oracle's chief executive, said the strong growth in the company's database business shows that it is continuing to take market share from its two key competitors, Microsoft and IBM. [81K WAV or 81K AIFF]
Oracle's stock has more than quadrupled from a 52-week low of $19.94, and its market cap has reached $239 billion. Its price-earnings multiple has increased dramatically over the past year, along with its earnings per share, and the stock now sells for about 91 times what analysts expect the company to earn in fiscal 2001.
"What's been driving the valuation has been an expectation of really strong applications revenue growth," said Salomon Smith Barney analyst Gretchen Teagarden. "At this valuation, we were expecting at least 57 percent application revenue growth, but we got only 42 percent."
"This is going to be an outstanding year for applications growth - don't let the 42 percent fool you," Oracle's Ellison said during a conference call with financial analysts.
 Ellison told CNNfn that Oracle's applications business could grow as much as 100 percent this year and said the growth was slower in the most recent quarter because the company had only recently rolled out its new suite of applications. [224K WAV or 224K AIFF]
"I thought it was a very good quarter," said Banc of America Securities analyst Bob Austrian. "There was spectacular operating margin improvement and a terrific rebound in database growth. The blemish was the e-business applications growth. In context, I think Wall Street will be pleased but not euphoric."
Growth from e-business suite
Oracle's sales outside of the database area are being led by its e-Business suite, which enables companies to perform marketing, sales, supply chain, manufacturing, customer service, accounting, and human resources over the Internet. The Redwood Shores, Calif.-based company is benefiting from the popularity of Customer Relationship Management, or CRM, which consists of software and tools companies use for sales, customer service, and marketing. The CRM area is dominated by Oracle's competitor Siebel Systems (SEBL: Research, Estimates)
"Sales of our new applications software -- the Oracle e-Business suite -- will just get stronger and stronger throughout the year," Ellison's said. "Our complete and integrated e-Business suite is proving to be a compelling alternative to buying applications from several different vendors, and trying to make them work together."
Oracle's 111 percent increase in first-quarter net income also was driven by its plan to cut $1 billion in annual costs by using its own Internet e-Business applications.
"A billion dollars in annual savings translates to a 10-point improvement in our margins," said Jeff Henley, Oracle's chief financial officer. "We did better than that again this quarter. In the first quarter our operating margin improved over last year's by 11.7 points -- from 17.4 percent to 29.1 percent."
Looking forward
"Business continues to be extremely robust, which makes us bullish on the second quarter and the rest of the year," Henley said on a conference call. "We think margins will continue to expand, and sales pipelines look good again this quarter."
Henley told financial analysts on the conference call that Oracle should record at least 50 percent growth in applications this year, and that he is comfortable with analysts' prediction that the company will earn 19 cents per share in the second quarter.
At the same time, Oracle announced that it will split its stock 2-for-1, marking the 10th time that Oracle's common stock has been split since the company's initial public offering in March 1986. The 2-for-1 split applies to shareholders of record as of Sept. 25, 2000.
Oracle's stock rose $3.12 to $84.94 before the earnings were released Thursday, as Morgan Stanley Dean Witter analyst Charles Phillips upgraded the stock to "strong buy" from "outperform" and established a $125 price target for the shares. However, it slipped $2.06 to $82.88 in after-hours trading. 
|
|
|
|
|
 |
|
