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The key to tennis is to win the last point. -- Jim Courier

Oracle Reports Record Earnings
in line with Estimates

by Jeff Fischer (TMF Jeff)

ALEXANDRIA, VA, (June 17, 1997)/FOOLWIRE/ -- After the market closed, the second-largest software firm in the world announced record fourth quarter results, in line with expectations.

ORACLE CORP (Nasdaq: ORCL) hit the basket with a solid jump-shot, scoring fourth quarter sales of nearly $2 billion, up 33% from sales of $1.46 billion in the same quarter one year ago. Net income for the period rose 35%, to $360 million, or $0.54 per share. Last year the fourth quarter netted Oracle $0.40 per share, or $266 million.

Again, the company hit the basket -- but it wasn't all net, perhaps, in the eyes of Wall Street. And it wasn't a three-point shot. It was a strong quarter, as Oracle met estimates, but it didn't beat them, a la Microsoft and McAfee, and other software leaders. Oracle has been meeting but not beating estimates for the past few quarters.

For the 1997 fiscal year that just ended at Oracle, revenue grew 35% to $5.684 billion (Microsoft, by comparison, had revenue of $8.6 billion in its latest fiscal year). Net income grew 33% to $845 million, or $1.26 per share (excluding one-time charges), up from $636 million, or $0.95 in fiscal 1996.

This results in net margins on the year of 14.86%.

Snapshot comparison of the largest two software companies:

                  Oracle          Microsoft
Last fiscal year  
Sales            $5,684,000,000  $8,671,000,000
Net Income         $845,000,000  $2,195,000,000
Net margin        15%             25%

For Oracle, overall license and other related sales grew 26% from last year, due to strong demand in the latest quarter. Applications revenue in particular posted strong results, as healthy demand from all parts of the world increased Oracle's Application revenues 78% for the year.

Geographically, Oracle performed well around the world, while America was -- not surprisingly -- the strongest region, with sales up 44%, followed by Asia, up 25%, and Europe, the Middle East, and Africa up 20% compared to results achieved in fiscal 1996.

What bodes well for Oracle in the current quarter, and the ones to follow, is the much anticipated release of Oracle8. The new open systems database platform is set to launch on June 24th and strong industry acceptance is anticipated.

To wrap up the year, management stated: ``The fourth quarter represents the culmination of a pivotal year for Oracle. The database industry has consolidated around Oracle's leadership, giving us an advantage as we further provide customers with greater value and industry expertise through our business applications solutions,'' said Raymond J. Lane, president and Chief Operating Officer. ``Looking ahead, we have one strategic intent -- Network Computing -- and we have one architecture -- NCA, Oracle's Network Computing Architecture. In fiscal year 1998, we will be filling out the technological components beginning with Oracle8, the Oracle Applications Server, our Web Developer Suite, Web Applications and the NC.''

After earning $1.26 per share this year (meeting estimates to the penny), Oracle is expected to earn $1.67 per share next year, for a 32.5% rate of growth. The stock, at $53, trades at 42 times trailing earnings and 31.7 times the estimates four quarters out.

The company's run-rate (current quarter's results, times four) would give Oracle $7.79 billion in sales for fiscal 1998. In the prior four quarters (listed most-dated to most recent), operating margins were 27%, 16%, 20%, and 18%, with the current quarter coming in stronger, at 28%.

Net profit margins in the prior four quarters totaled 18%, 10.7%, 13.7%, 12%, and again, stronger this quarter at 18.6%.

While Oracle's margins have fluctuated, Microsoft's have grown steadily, much like Microsoft's cash balance -- to $10 billion. Oracle's cash at the end of May was $1 .3 billion, while accounts receivable totaled $1.5 billion; but liabilities were $1.9 billion, and long-term debt equaled $340 million.

Why compare Oracle to Microsoft while writing about Oracle's earnings report? The companies are numbers one and two in the software industry -- why not compare? But however the numbers behind the respective businesses look, both stocks have been outstanding investments.

Oracle's stock has compounded 70.6% annually over the past five years, and has been one of the best-performing stocks of this decade. The company has recovered from near ruin, and now has arguably been ruining the competition, while increasing its lead.

The stock reportedly traded $2 lower to $51 in after-market hours, following the earnings announcement. For an investor, that's neither here-nor-there.

Oracle trades at 31 times next year's estimates, while growing 32% annually -- so appears fundamentally to be at fair-value. The market has been placing lofty premiums on leaders, though -- considering the multiples currently given Microsoft and Coca-Cola.

Oracle's stock has, to this day, steered clear of a "lofty" valuation.

Next: Tom Gardner on Oracle and Lifeboats in Storms

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