Last quarter, Oracle posted lower than expected earnings and revenues, which was blamed on changing foreign exchange rates. First quarter reports are historically weaker in comparison to later quarters, however, there may not be reason to worry about the California based firm in the long run. Oracle has made considerable improvements to its cloud business.Currently, the cloud consists of 5% of total revenue, growing sales from 30% to 35 % YoY in the last year. The software giant must sustain continual growth in its cloud business in order to have any credibility or major threat to other cloud vendors. Additionally, Oracle’s bread and butter licensing and product support business has maintained its strength with a large chunk of the revenue coming from these. But competition from the likes of Microsoft and IBM is something that must be monitored closely, especially considering that Oracle’s cloud-based subscription option will only reflect success in the coming years.
A common issue with Oracle, and what may be a significant factor in preventing individuals from purchasing shares, is the overall performance of the stock.In December of 2014, shares reached roughly $48. Since then, there has been a 20% dip. However, with roughly $14 billion in operating cash flow, the Larry Ellison led firm has positioned itself to potentially buyback stock and issue higher dividends. This is a bargain and low-risk, high-reward type situation as Oracle currently trades at 17x its earnings (3 points lower than the S&P 500).
(Photo Credit: Chang Ju Wu)