No. 2 software developer Oracle
For the quarter, earnings per share climbed 20% to $0.12 from $0.10 a year ago, while free cash flow (the quick version -- net cash from operations less capital expenditures) catapulted to $497 million from $219 million last year. Kudos to Oracle for providing all three financial statements in its earnings press release. Everybody should.
Revenues climbed nicely. Key numbers are software sales up 15%, service revenues down 10%, and total revenue up 8% to $2.5 billion. New software license revenues jumped 13%, and product support revenues vaulted 17%. The dollar's decline vs. a year ago contributed 8 percentage points to those rates, or more than half of the combined total, but the overall results are still a step up from the 2% or so year-over-year revenue gains of the last several quarters. Hint: Year-over year comparisons are essential given the seasonality of Oracle's business; Q1 sales are lowest, with numbers up in Q2 and Q3, and highest in Q4.
Of those new software licenses, database technology grew 11% and applications 27% (and we're out of synonyms for "went up"). On the conference call (transcript courtesy of CCBN/StreetEvents), execs pointed out that these results exceeded those of competitors SAP
Management was guardedly optimistic for increased business software spending in 2004, noting its 2003 growth in all software lines and in the Americas, Europe, and Asia, and projecting that its greatest 2004 opportunity lies next year in the Americas. Responding to concerns that the software database business may become a commodity and face increased pricing pressure, management conceded it faced intense pricing competition but observed one major opportunity ahead.
The company projects sales growth from its new 10g product, saying it's the first database and application server designed to run on a grid of low-cost computers, rather than one expensive mainframe. Oracle is seeing good returns from its backing of products that run on Linux:
"In terms of acquisition of new customers as we are pushing Linux aggressively, we are seeing in the mid-market [that] Linux is a very attractive alternative to Windows."
And execs believe that shifts from UNIX or Windows to Linux will drive grid computing and sales of Oracle's 10g.
Oracle also said its upcoming version of the Oracle database suite 11i offers daily business intelligence, a move to include in-house versions of analytical software. This is one of the hottest growth areas in software, currently dominated by Cognos
Customers to date have demanded that the big guns include those companies' applications, but Oracle, SAP, and others are developing their own analytics products. It will be tough for newcomers -- huge or not -- to displace already-installed products, but watch the fight. The business intelligence leaders will either win or be bought out by the big players.
Oracle now sells for roughly 19 times trailing-12-month free cash flow. Whether it's a value or pricey depends not only on growth but on what it intends to do with $8.1 billion in cash and equivalents. Execs said that they plan to keep share buybacks low right now, preferring to conserve cash for the PeopleSoft acquisition or others.
Bear in mind, most acquisitions reduce shareholder value. Unless extremely knowledgeable about software markets, individual investors might be advised to sit this one out.
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