Impressive fourth-quarter prelims suggest that Oracle Corp’s growth-by-acquisition strategy is paying off as its stock price jumped noticeably for the first time since before it began its nearly $20bn spending spree, propelled by substantial new license growth and an 83% increase in application license revenue.
In its preliminary results for the fourth quarter 2006, traditionally its best quarter, Oracle shattered its own and analysts’ expectations. It said it expects earnings for the quarter to be $0.24 per share against its own guidance of $0.21 to $0.23 and said this figure would have reached $0.29 but for acquisition related costs.
Total revenue is expected to rise 25% to $4.85bn, when Oracle expected a rise in the region 13% to 17%. Analysts expected something like $4.6bn revenue.
The top performing sector was business applications, where license revenue was up 83%. This included the contribution from Siebel and Retek, but the increase excluding these two acquisitions was still an impressive 56%. New software license revenue was up 32% at $2.12bn, against Oracle’s expectation of 8% to 18%. The poorest performing area was the database sector, where license revenue was up 18%.
Shares rose by 3.9% during regular trading following the release of the prelims, rising to a 6.6% gain in extended trading. In Europe, they rose 6.6%, outstripping SAP, which benefited from Oracle’s prelims, gaining 3%.
Oracle’s strong performance is the first sign that its acquisitions gamble is paying off. Although it will only be confirmed if it puts in a series of good quarters, the fact that it has seen a substantial rise even before Fusion comes close to execution is promising.
It could also indicate that SAP is about to experience a level of pressure it has not felt for several years. While SAP has a lot of potential due to its ESA architecture story, the Duet applications which represent a market-expanding new class of application, and a burgeoning mid-market initiative, adoption of its latest generation of technology on which its future plans rely, is a slow process.
SAP’s most recent quarterly results were stale compared to Oracle’s, with revenue rising 18%, license revenue growing by 22%, and net income improving by 11%. Although it met analysts’ revenue expectations, it disappointed in the area of net income.
Standard and Poors Equity Research upgraded SAP to buy status last week on the basis of its future prospects, even though its stock price was down 16% on recent highs.
Oracle’s new license and application license numbers suggest that organizations are increasing the IT spend, but how much is due to the release of demand that built up while watchers took stock of Oracle’s activities and how much is new budget is unclear. In general, spending on enterprise applications is slated to increase by 3% to 6% during 2006, with Europe representing the lower end.