Oracle Sales Tops Estimates as Cloud Demand Increases

Oracle Corp. (ORCL) reported fiscal second-quarter sales and profit that topped analysts’ estimates as customers bought software and high-end hardware to support a shift to computing over the Web.

Revenue for the period that ended in November climbed 2 percent to $9.28 billion, while profit excluding some items was 69 cents a share, the company said in a statement today. The average estimate of analysts was $9.18 billion in sales and earnings of 67 cents, according to data compiled by Bloomberg.

The enterprise software industry is in the middle of a broad transition to deliver software via online subscriptions, which is sapping revenue and profit growth for traditional suppliers. Chief Executive Officer Larry Ellison has spent $50 billion to acquire about 100 companies over the past decade, seeking to keep the world’s largest database software maker relevant to businesses delivering cloud software.

“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.”

Shares of Redwood City, California-based Oracle rose as much as 3.6 percent in extended trading. The stock advanced 2.9 percent to close at $34.60 in New York, leaving it up 3.8 percent this year, compared with a 27 percent increase in the Standard & Poor’s 500 Index.

Photographer: David Paul Morris/Bloomberg

Oracle Corp. signage is displayed outside of the company's headquarters in Redwood City, California. Close

Oracle Corp. signage is displayed outside of the company's headquarters in Redwood City, California.

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Photographer: David Paul Morris/Bloomberg

Oracle Corp. signage is displayed outside of the company's headquarters in Redwood City, California.

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. Oracle 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.”

Revenue in the current fiscal third quarter will climb 2 percent to 6 percent, Oracle Chief Financial Officer Safra Catz said on a conference call with analysts. Profit, excluding acquisition-related expenses, stock-based compensation and other items, will be 68 cents to 72 cents a share, she said. Analysts are predicting sales will grow 4 percent to $9.35 billion and earnings will increase 8 percent to 70 cents.

Cloud Shift

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.

In September, Oracle enhanced its database to take greater advantage of large amounts of computer memory to speed data analysis and online commerce. Oracle and Salesforce.com Inc. (CRM) struck a partnership in June, agreeing to use more of one another’s products and have their applications share some data.

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

“We think we have a much stronger platform than any of our software-as-a-service competitors,” Ellison said.

To contact the reporter on this story: Aaron Ricadela in San Francisco at aricadela@bloomberg.net

To contact the editor responsible for this story: Pui-Wing Tam at ptam13@bloomberg.net

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