Boring Portfolio

Boring Portfolio Report
Wednesday, June 18, 1997
by Greg Markus (TMF Boring)


ANN ARBOR, Mich. (June 18, 1997) -- Major market averages closed lower on Wednesday, as did the Boring Portfolio, which gave back yesterday's gain (-0.81%) to slip under the $64,000 mark. In a mirror image of Tuesday's performance, Boring losers outnumbered winners two-to-one.

As you quite probably know by now, ORACLE CORP. (Nasdaq: ORCL) reported its fiscal fourth quarter and FY97 results yesterday evening, and a fine report it was. Quarterly revenues increased 33% over the year-ago quarter, to $1.95 billion.

One-point-nine-five. Billion. Dollars. In three months. Ninety-two days.

That works out to more than $21 million in revenues per day. Including Saturdays and Sundays.

Nearly a million dollars an hour, 24 hours a day, not counting coffee breaks. And sales are indeed clocked 24 hours a day, since the sun never sets on Oracle's global operation.

Subtract the costs of running this enormous enterprise -- sales expenses, R&D, advertising, shrink wrap, Jolt Cola and Ding Dongs for the programmers, and so forth -- and Oracle made $560 million in operating earnings in the last three months. That's a 28.7% operating margin. And that's a full percentage point higher -- higher! -- than last year.

Add in a stray $2.6 million in "other income" (interest income, spare change found under seat cushions), set aside a $202.5 million slice for taxes, and you're left with $360 million: an 18.5% net margin. Divvy that up among 668.5 million common and common equivalent shares, and it works out to 54 cents per share -- which is spot on the average of the estimates provided by the 30 analysts surveyed by First Call last week.

Moreover, Oracle appears to have accomplished this without any funny business in terms of stuffing the channel in the last few days. Days sales outstanding stood at 71 -- 2 days less than in Q3. And Oracle managed to do all of this despite an unfavorable exchange-rate environment that cost the company four percentage points off the top.

Looking beyond the numbers and focusing on what it is that Oracle does -- which is developing, producing, selling, servicing, and educating about computer software -- one again finds much to admire. Regarded almost entirely as a database company as recently as a couple of years ago, Oracle has transformed itself into a much more broadly-based partner to businesses the world over.

Oracle not only sells you the basic database, it also sells you a full-line of specific application programs you can use with it -- manage personnel, track sales, analyze inventories, ... whatever. In fact, revenues from the applications side of the business were up 78% in the quarter relative to a year ago.

And if you're in, say, the pharmaceuticals biz, or financial services, or consumer package goods, Oracle can sell you a "vertical" software package that is designed specifically to handle every aspect of your particular business, from what supplies you need to who buys the stuff you sell. And every step in between.

On top of that, the company is six days away from launching its hottest new product cycle in years. Oracle8, to be unveiled at Radio City Music Hall next Tuesday, will enable businesses not only to store, retrieve, and manipulate the numbers and stuff that folks put in spreadsheets. It'll handle pictures, graphics, sound, video clips, ... pretty much anything you can digitize and stick in a machine.

On the applications side, programmers are putting the finishing touches on customizing and translating the latest releases for sale all over the globe. Need a business app in Italian? No problem. Korean? How many you want?

A year or so ago, many folks wondered whether the introduction of the MICROSOFT (Nasdaq: MSFT) NT platform would jeopardize Oracle's business. Borrowing a page from the "embrace and expand" book of Chairman Bill, Oracle cranked out a set of new offerings for the NT platform. And successfully, too. Sales of Oracle's NT stuff increased by 200% in fiscal 1997.

Yeah, so why's the stock down three bucks today?

Well, one reason is that although Oracle's bottom line satisfied the expectations of your average analyst, it didn't satisfy every analyst. Chris Shilakes at Merrill Lynch was looking for $0.57, for example. Other analysts (the guy at Gruntal, reportedly) wanted to see a bit more on the top line, perhaps not fully factoring in the currency translation complications.

And not every detail in Oracle's story was picture perfect. Sales in parts of Europe continue to be sluggish -- although that should change when the full line of translated apps becomes available later this summer. Oracle execs were themselves disappointed by soft sales in parts of Asia, also. To some degree, the comparatively weak fourth-quarter growth in Asia/Pacific is an artifact of an unusually strong Q4 last year. But not entirely. So some folks will fixate on that.

Moving from geography to products, Oracle's core server products showed some slowing growth. That should have surprised no one; Oracle Applications is where the really fast growth is coming from ... at least until Oracle8 begins to kick in. Still, some folks will obsess about that.

Also, the big trading volume the days ahead of the earnings report indicates that some momentum traders piled on in hopes of an upside surprise. Some of them may have piled back out today, and perhaps for a while yet.

Whatever.

It's the start of a new fiscal year for Oracle. The stock is trading around 30-times projected EPS for FY98. That's no bargain, but it's hardly out of line with plausible expectations for the company's earnings growth over the next few years -- particularly if this whole thin client idea catches on.

Folks who want to try an trade ORCL may succeed. Or they may not.

Folks who buy ORCL and hang onto it as Oracle, the company, launches into a fresh new product cycle ... well, they've got an awfully attractive risk/reward scenario laid out ahead of them for some years yet, I think.

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(c) Copyright 1997, The Motley Fool. All rights reserved. This material is for personal use only. Republication and redissemination, including posting to news groups, is expressly prohibited without the prior written consent of The Motley Fool.


TODAY'S NUMBERS
Stock  Change    Bid
ATLS  -1 1/4   33.63
BGP   +  1/4   23.88
CSL   +  1/8   33.63
CSCO  -1 11/16  67.00
GNT   +  5/8   36.00
ORCL  -3       50.25
OXHP  -  1/4   68.75
PMSI  -  3/16  11.56
TDW   -  1/8   43.88
                   Day   Month    Year  History
        BORING   -0.81%   4.76%  11.09%  27.84%
        S&P:     -0.60%   4.81%  20.03%  43.03%
        NASDAQ:  -0.74%   2.29%  10.95%  37.61%

    Rec'd   #  Security     In At       Now    Change
  2/28/96  400 Borders Gr    11.26     23.88   112.10%
   3/5/97  150 Atlas Air     23.06     33.63    45.83%
  5/24/96  100 Oxford Hea    48.02     68.75    43.15%
  8/13/96  200 Carlisle C    26.32     33.63    27.73%
  6/26/96  100 Cisco Syst    53.90     67.00    24.30%
   2/2/96  200 Green Tree    30.39     36.00    18.47%
   3/8/96  400 Prime Medi    10.07     11.56    14.84%
 11/21/96  100 Oracle Cor    48.65     50.25     3.29%
 12/23/96  100 Tidewater     46.52     43.88    -5.70%

    Rec'd   #  Security     In At     Value    Change
  2/28/96  400 Borders Gr  4502.49   9550.00  $5047.51
  5/24/96  100 Oxford Hea  4802.49   6875.00  $2072.51
   3/5/97  150 Atlas Air   3458.74   5043.75  $1585.01
  8/13/96  200 Carlisle C  5264.99   6725.00  $1460.01
  6/26/96  100 Cisco Syst  5389.99   6700.00  $1310.01
   2/2/96  200 Green Tree  6077.49   7200.00  $1122.51
   3/8/96  400 Prime Medi  4027.49   4625.00   $597.51
 11/21/96  100 Oracle Cor  4864.99   5025.00   $160.01
 12/23/96  100 Tidewater   4652.49   4387.50  -$264.99

                             CASH   $7788.54
                            TOTAL  $63919.79