Shares of Oracle (NYSE:ORCL) recently rose after the enterprise software company's second-quarter numbers exceeded analysts' expectations. Its revenue stayed flat year over year (but got a 2% boost on a constant currency basis) to $9.56 billion, beating expectations by $40 million.

Non-GAAP net income climbed 3% to $3.1 billion, as its earnings per share -- buoyed by $10 billion in buybacks -- spiked 16% to $0.80 per share and beat expectations by $0.02. On a GAAP basis, its net income grew 5% to $2.3 billion and its EPS by 18% to $$0.61.

A broken line chart coming up from the ground.

Image source: Getty Images.

On a constant currency basis, Oracle expects revenue to rise 2%-4% annually during the third quarter as its non-GAAP EPS climbs 7%-9%. However, it forecasts currency headwinds to reduce revenue by 4% and its non-GAAP EPS by $0.03, implying that its reported revenue growth should be negative to flat as its non-GAAP earnings go up 3%-5%. The company plans to keep boosting its EPS with buybacks, which already reduced its share count by 12% over the past 12 months.

For the full year, Oracle expects to generate double-digit non-GAAP earnings growth on a constant currency basis. Analysts expect its non-GAAP EPS to rise 8% on a reported basis for the year and for its revenue to stay roughly flat. 

Though Oracle's growth rates seem anemic, they indicate that its turnaround strategy is gradually stabilizing the business. The stock also looks cheap at 13 times forward earnings, and future buybacks should further reduce that multiple. So is it finally time to buy this "mature" tech stock?

The key numbers

Oracle's core turnaround strategy is to pivot from its slower-growth, on-premise businesses, like database hardware and software, toward its higher-growth cloud services. Up until the third quarter of 2018, Oracle clearly disclosed the growth of its cloud-based SaaS (software-as-a-service), IaaS (infrastructure-as-a-service), and PaaS (platform-as-a-service) businesses.

A network of cloud computing connections.

Image source: Getty Images.

The growth of all those businesses decelerated significantly throughout fiscal 2018, causing many investors to question Oracle's ability to grow its cloud businesses in the shadow of Amazon.com (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT), and other big rivals.

In the fourth quarter of 2018, Oracle stopped disclosing its growth in SaaS, IaaS, and PaaS revenues and blended them into two more opaque reporting segments: "Cloud Services & License Support" revenue and "Cloud License & On-Premise License" revenue. However, that change couldn't mask the fact that Oracle's cloud growth was still decelerating.

Metric Q4 2018 Q1 2019 Q2 2019
Cloud services and license support $6.8 billion $6.6 billion $6.6 billion
YOY growth 8% 3% 3%
Cloud license and on-premise license $2.5 billion $867 million $1.2 billion
YOY growth (5%) (3%) (9%)

Data source: Oracle quarterly reports, on a reported (not constant currency) basis. YOY = year over year.

Those two businesses accounted for 82% of Oracle's revenue during the quarter. The rest came from its hardware and services units, which both posted 5% year-over-year revenue declines during the second quarter.

Simply put, Oracle's revenue growth flatlined, its other businesses are lagging, and its outlook for the third quarter indicates that its cloud unit won't become a major growth engine anytime soon. Some parts of the cloud businesses -- like ERP (Enterprise Resource Planning) and HCM (Human Capital Management) -- are generating high double-digit sales growth, but they simply aren't offsetting the sluggish growth of weaker businesses.

Oracle's cloud business is much smaller than Amazon's or Microsoft's, and it's growing at a much slower rate. Amazon's AWS revenue rose 46% annually last quarter, helping it maintain its lead as the biggest cloud platform (IaaS/PaaS) provider in the world. Microsoft's commercial cloud revenue grew 47% annually last quarter, and revenue from Azure (which competes against AWS' and Oracle's IaaS/PaaS platforms) surged 76%.

Conservative spending and bigger buybacks

Oracle's non-GAAP operating margin remained unchanged year over year at 32% during the quarter, as its total operating expenses increased by less than 1% to $5.48 billion. That conservative spending strategy could prevent it from effectively competing against Amazon and Microsoft.

On the bright side, Oracle expects its revenue growth to accelerate (on a constant currency basis) in the second half of 2019 as its ERP and HCM units generate stronger growth and lock in more customers. Oracle also has a war chest of $49 billion in cash and marketable securities, which could be spent on acquisitions, additional buybacks, and a dividend hike that would make its yield (currently at 1.6%) more attractive to income investors.

The turnaround isn't here yet

While its second-quarter earnings report was decent, it didn't offer any real revenue growth or ways to widen its moat against Amazon or Microsoft, both of whom are targeting the company's database business.

Oracle's business is stable, but it's still treading water and deserves a low valuation. For now, investors should stick with other "mature" tech stocks until it shows brighter flickers of life.