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Oracle Stock: Cloud Computing Driving Its Growth [VIDEO]

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.

 Related: Is Amazon’s Current Dip a Buying Opportunity?

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.

 Related: This Company’s Stock is Trading at 5 Times Fiscal Estimates

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