What’s happening: Oracle Corp reported stronger-than-expected results for its third quarter, beating estimates for both revenue and profits.
What happened: Shares of the tech giant had plummeted 11% during regular trading hours on Thursday to reach its lowest level in two years, amid a broader downturn in the US equity market. However, the stock gained more than 4% in after-hours trading, flowing Oracle’s results, which included the company’s strongest sales growth in around two years.
While announcing the outlook for the fourth quarter, the company’s top management explained why Oracle was in a position to cushion the coronavirus blow.
- Oracle reported adjusted third-quarter profits of 97 cents per share, versus 87 cents a share in the same quarter in the previous year. The figure was ahead of the consensus estimate of 96 cents per share.
- The company’s sales quarterly grew 1.9% to $9.8 billion, beating expectations of $9.75 billion.
Why it matters: Oracle’s CEO Safra Catz said it is a little tricky to project future sales, as the impact of the coronavirus pandemic on supply chains and customer spending was still uncertain. Catz added, however, that so far at the company it had mostly been “business as usual.”
CEO Safra Catz and CTO Larry Ellison highlighted that Oracle’s business model, which has “changed radically” since the dot-com bubble burst in the early 2000s, seems suited to cushion the blow of coronavirus-related disruptions.
Oracle’s sales and service delivery are now mostly in digital formats. “We do digital selling, digital support, we’re communicating with you across the internet,” Ellison said. Moreover, over the years, the company has moved from having lots of smaller offices across the US and the world to a “hub model” in Texas and California. This minimizes travel and eases workforce management during the coronavirus crisis.
Another advantage that Oracle has is that it has shifted to a subscription-based offering, from its earlier license-based one. The latter could have weakened due to the coronavirus outbreak and in the event of an economic recession. However, during periods of crisis, companies prefer subscription-based offerings, as their focus is on lowering costs.
The virus outbreak has highlighted the need for digitization and companies that so far didn’t have an online presence are considering investing in it. With this, cloud service providers could experience a boost in demand for their offerings.
The virus outbreak has highlighted the need for digitization and companies that so far didn’t have an online presence are considering investing in it. With this, cloud service providers could experience a boost in demand for their offerings.
After spending $13.9 billion on share repurchases in the first nine months of this fiscal year, the world’s second-largest software maker announced an additional authorisation of $15 billion. This could support its share price.
Recent stock performance: Shares of Oracle have been affected by the wider sell-off in the US stock market. However, even before this, the company’s stock was not performing well. The stock has lost more than 24% over the past year, versus a 1.8% decline in the S&P 500.
What to watch: Although Oracle’s business model is strong and the company is well positioned for the projected growth in digitization, it has been facing stiff competition from mammoth public-cloud companies like Amazon and Microsoft. News of Oracle gaining market share or shifting its current database clients to cloud-based applications would be positive for its stock.
Investors also await updates about Oracle’s AI-driven Autonomous Database product. Moreover, the company has been looking to lower its costs over the past couple of years. Progress on this front would also support the shares.