On Wednesday, BofA Securities updated its stance on Oracle Corporation (NYSE:ORCL) shares, increasing the price target to $155 from the previous $144, while keeping a Neutral rating on the stock. The adjustment follows Oracle's announcement of robust fourth-quarter earnings, which were notably bolstered by the company's cloud business.
Oracle reported a significant $18 billion increase in its backlog and remaining performance obligations (RPO), attributed to the robust performance of multi-year hosting deals.
This cloud strength was a key highlight in the company's quarterly financial results. Despite the positive outcome, some of Oracle's growth metrics did not meet expectations. The total cloud subscription growth stood at 20%, falling short of the forecasted 22% to 24% range.
The company's Oracle Cloud Infrastructure (OCI) services, encompassing Infrastructure as a Service (IaaS) and Platform as a Service (PaaS), presented a 43% growth rate. This figure, while representing a slowdown from the previous 49% growth rate, was still considered strong given the current challenging market conditions.
However, Oracle's Software as a Service (SaaS) recorded a 10% growth, which is modest when compared to the mid to high teens growth rates of other application peers. This suggests that Oracle may be continuing to lose market share in this segment.
The analyst from BofA Securities highlighted the mixed nature of the growth metrics, pointing out that despite Oracle's solid performance in the cloud sector, there are areas where the company is not keeping pace with the competition.
The updated price target reflects the firm's recognition of Oracle's strengths in its cloud offerings, balanced against the areas where it is not performing as strongly as anticipated.
In other recent news, Oracle Corporation reported a strong Q4 performance in fiscal year 2024, largely driven by the increasing demand for its cloud services. The company's cloud revenue saw significant growth, with total cloud revenue, including SaaS and IaaS, rising by 23% to $4.7 billion. A record level of sales for Oracle Cloud Infrastructure (OCI) was achieved, and the company also reported its largest sales contract to date.
Oracle's Remaining Performance Obligations (RPO) saw a notable increase of 44% to $98 billion, reflecting strong sales momentum. This robust growth is expected to continue, with Oracle projecting double-digit revenue growth in fiscal year 2025, supported by cloud demand and OCI capacity expansion.
In addition, Oracle announced a strategic partnership with Google (NASDAQ:GOOGL) to offer multi-cloud flexibility and plans to construct large data centers to support AI development and large language model training.
The company expects total revenue to grow 6-8% in constant currency and 5-7% in USD in Q1 of fiscal year 2025, with cloud revenue growth forecasted at 21-23% in constant currency and 20-22% in USD.
Despite a 14% decline in software license revenues, Oracle's focus on large-scale data centers for AI and partnerships with major cloud providers, including Microsoft (NASDAQ:MSFT) and Google, bolster its database services, positioning the company as a competitive player in the cloud services market. These recent developments underscore Oracle's successful pivot towards cloud-based services and indicate a strong outlook for continued revenue growth.
InvestingPro Insights
Oracle Corporation's (NYSE:ORCL) latest financial results reflect a company that is navigating the competitive landscape with notable strengths and some challenges. Through InvestingPro's lens, we see that Oracle has a history of rewarding shareholders, having raised its dividend for 10 consecutive years and maintaining dividend payments for 16 years. This commitment to returning value is a positive signal for investors looking for stable income.
On the valuation front, Oracle's stock is currently trading at a P/E ratio of 31.89, indicating a high valuation relative to near-term earnings growth. This is supported by an adjusted P/E ratio for the last twelve months as of Q3 2024 at 29.83 and a PEG ratio for the same period at 1.31. Such metrics suggest that investors are paying a premium for Oracle's earnings growth potential, which may be a point of consideration for those evaluating the stock's current price.
Oracle's cloud business, a key driver of its recent earnings success, is part of a broader industry trend towards digital transformation. Investors interested in Oracle's position within this trend can access additional "InvestingPro Tips" that provide deeper insights into the company's performance and valuation metrics. For a limited time, use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, which includes over 11 additional tips to help make informed investment decisions.
For more detailed analysis and metrics on Oracle, including its market cap of $340.49 billion and revenue growth of 9.49% over the last twelve months as of Q3 2024, visit https://www.investing.com/pro/ORCL. With the next earnings date on June 11, 2024, investors will be watching to see if Oracle can continue its cloud momentum and address the competitive challenges in its SaaS offerings.
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