Credit Suisse recently said that Oracle Corporation’s transformations towards Cloud will be a success (see the video above for a detailed explanation). Firm analyst Brad Zelnick believes that that the market is undervaluing Oracle stock during their Cloud transition, mainly because the company’s finances are taking a temporary hit due to the big changes in its business dynamics. Zelnick had an “Outperform” rating for the stock with a price target of $62. His report also said that Oracle has “the best” Cloud ERP product. This is important because ERP market size is over $43 billion.
Oracle will announce fiscal first quarter results next week. The Wall Street expects Oracle to report a revenue of $9.03 billion, while EPS is expected to come in at $0.61 — an 11% increase year-over-year.
Oracle’s core business is experiencing massive headwinds amid the changing industry environment. In fiscal 2017, Oracle’s licenses and hardware revenues plummeted by 5% and 11%. These two segments have been on a free-fall over the last four years. But experts think that Oracle’s growth in Cloud is on a trajectory to become one of the primary growth drivers for the company. Investors should hold the stock and wait patiently to reap the benefits.
Oracle’s management is extremely bullish on the company’s Cloud business. SaaS, PaaS and IaaS growth is expected to come in at 50%, as Oracle’s clients worldwide continue to migrate to Cloud services. Oracle makes about 15% of its revenue from its Cloud segment, which shows that there is massive room for growth. Oracle’s SaaS revenue in fiscal 2017 reached $3.2 billion, which shows a whopping 61% growth on year-over-year basis. IaaS and PaaS revenue in the period came in at $1.4 billion, a 60% increase. Total Cloud revenue in the year increased by $368 million, which offset the decline of $858 million in new software licenses revenue.
Oracle’s margins are expected to improve further due to its Cloud transition. In the most recent quarter, on non-GAAP basis, Oracle’s SaaS margins increased to 65% from 54%. Oracle management has a target of 80% increase in margins.
Oracle stock is up over 34% since the start of this year.