Enterprise software maker Oracle Corp yesterday posted a 42% jump in profits on 18% revenue growth.
Oracle earned $765m in profit on $3.5bn revenue for its most recent, fiscal third quarter. After items, the company said it netted a profit of 19 cents per share, or one cent more than most Wall Street analysts had expected. A year ago, the company posted $540m, or 14 cents, in profit on $2.95bn in revenue.
However, shares in Redwood Shores, California-based Oracle fell more than 3% to $13.21 in after-hours trading on the Nasdaq yesterday, as Oracle reported its core database business had seen just a modest recovery.
Total software revenue grew 20% to $2.8bn during the quarter. Total revenue from new software licenses grew 17% to $1.1bn, but chief executive Larry Ellison pointed out it was the company’s core renewal business and not new licenses that enables it to continue to see increasing margins.
Ellison acknowledged new license revenue was a good bellwether for smaller or younger software companies, because those contacts lead to service and support revenue in coming years. But he said this wasn’t the case for a company like Oracle that has a large install base.
An increasing part of our business is renewals, which are now more than half of our overall revenue, Ellison said on a conference call. And that business has a 90%-plus margin built into it . . . the shape of our business and where the profits of the business largely come are from these subscribers.
Customer renewals are why Oracle’s margins continue to grow, Ellison said. It is not cost cutting. It is not cost cutting, he said.
However, sales of new Oracle database and middleware licenses grew just 5% to $820m during the quarter. Chief financial officer Safra Catz pointed out that this would have been a 9% increase if foreign currency exchange rates hadn’t fluctuated by 4% during the quarter. No matter – Wall Street had hoped for $850m and was disappointed.
However, total new application license revenue was up a whopping 77% to $269m, which Catz noted was beyond rival SAP AG’s 18% growth during its most recent quarter. The jump in Oracle’s new application business may suggest a return to form for this unit, which has been threatened by uncertainties surrounding some of Oracle’s recent acquisitions.
New applications license revenue in Europe more than doubled during the quarter, Catz said. Application growth in the region grew 119%, while in the America’s the business grew 61%, she said.
Our new license business basically showed that are applications are growing faster than SAP’s, our middleware faster than BEA’s and we continue to take market share from IBM, Catz said in her closing remarks.
Even excluding sales for Siebel Systems Inc products, application revenue grew 63% to $247m, Catz noted.
Of course, Oracle has spent almost $20bn during the past two years on a company-shopping spree. Notably, earlier in the year it acquired rival Siebel and last year PeopleSoft Inc.
Catz said Oracle’s next-quarter outlook remained unchanged, with expected earnings per share of between 26 cents and 28 cents before items. And the company’s revenue forecast remained in tact from its February estimates, of growth between 10% and 14%, Catz said.
She also noted that the company’s current fiscal fourth quarter is seasonally Oracle’s strongest.
