Oracle Profit Tops Estimates as Cloud Shift Pays Off

Oracle Corp.’s efforts to push deeper into Web-based cloud computing are paying off, with the software maker reporting fiscal second-quarter profit and sales that surpassed analysts’ estimates.

Profit before certain costs was 69 cents a share in the period that ended Nov. 30 on revenue of $9.6 billion, the company said in a statement today. On average, analysts projected profit of 68 cents and $9.5 billion in sales, according to data compiled by Bloomberg.

The quarter was the first with Mark Hurd and Safra Catz as chief executive officers, after they took over from founder Larry Ellison three months ago. Oracle has introduced new software delivered over the Internet and acquired companies to win corporate customers, seeking to boost revenue after 13 straight quarters of sales growth of less than 5 percent. Like Adobe Systems Inc. and Microsoft Corp., Oracle is seeking to replace one-time sales of software with ongoing subscriptions.

“If there’s any hiccup or hint of slippage in operating margin relating to this transition, then the red flag is going to go up” said Dan Morgan, a senior portfolio manager at Synovus Securities Inc., which owns 1.4 million Oracle shares.

The shares of Redwood City, California-based Oracle rose as much as 6.4 percent in extended trading. The stock advanced 1.3 percent to $41.16 at the close in New York, leaving it up 7.6 percent this year, compared with a rise of 8.9 percent for the Standard & Poor’s 500 Index.

Second-quarter net income fell 2 percent to $2.5 billion, or 56 cents a share, from $2.55 billion, or 56 cents, a year earlier.

Revenue Outlook

For the fiscal third quarter that ends in February, Catz said on a conference call that unusually high volatility in foreign exchange rates could adversely impact revenue by 4 percent and per-share earnings by 4 cents. Based on this, Oracle issued a profit forecast of 65 cents to 70 cents for the current quarter and sales that will be flat to 4 percent higher from a year earlier, according to data compiled by Bloomberg.

Analysts, on average, are predicting profit of 73 cents and sales rising 4 percent to $9.68 billion in the fiscal third quarter.

In the prior period, new software license sales, an indicator of future revenue, fell 3.6 percent to $2.05 billion, Oracle said.

“I think folks will look past that if they see meaningful traction on the cloud initiatives,” said Bill Kreher, an analyst at Edward Jones & Co. who has a buy rating on the stock.

In the hardware division, which bolsters Oracle’s software and support sales, revenue was rose slightly at $1.33 billion.

Cloud Business

Combined sales in Oracle’s cloud software, platform and infrastructure businesses were $516 million, up 45 percent from a year earlier. The company started disclosing cloud revenue two quarters ago.

“The stock is trading on that cloud growth,” Morgan said.

Analysts and money managers are looking at the performance of Oracle’s cloud products to gauge the company’s ability to change its core businesses to compete with Salesforce, Workday Inc., Amazon.com Inc.’s Web services unit and other cloud-computing providers. Oracle spent more than $50 billion to acquire about 100 companies in the past decade to bolster its core businesses of database, hardware and business-applications, and help it gain share in the cloud.

Oracle is on track to sell more than $1 billion of new cloud subscriptions next fiscal year, Ellison said on a conference call. The company is also catching up to Salesforce in new cloud subscriptions, said Ellison, who is now Oracle’s chairman and chief technology officer.

“Stay tuned, it’s going to be close,” Ellison said. “We’re catching up to them, and catching up very quickly.”

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