Oracle AI-powered Deals Attractive growth potential

On June 11, 2024,?Oracle Corporation?(ORCL) announced its fiscal 2024 fourth-quarter and full-year financial results. Oracle expects revenue growth driven by the data center and cloud capacity required for advancing AI models.?The company anticipates double-digit revenue growth in fiscal 2025, fueled by strong demand for cloud infrastructure services. Below we share our insights.

https://www.ki-wealth.com/oracle-ai-powered-deals-how-to-benefit/

For detailed insights please subscribe to our Premium Or Professional Service

Oracle financial highlights for the fiscal Q4 2024

• Q4 Total Revenue $14.3 billion, up 3% in USD, up 4% in constant currency
• Q4 Cloud Revenue (IaaS plus SaaS) $5.3 billion, up 20%
• Q4 Cloud Infrastructure (IaaS) Revenue $2.0 billion, up 42%
• Q4 Cloud Application (SaaS) Revenue $3.3 billion, up 10%
• Q4 Fusion Cloud ERP (SaaS) Revenue $0.8 billion, up 14%
• Q4 NetSuite Cloud ERP (SaaS) Revenue $0.8 billion, up 19%

Fiscal year 2024 total revenues were up 6% in USD and constant currency to $53.0 billion. Cloud services and license support revenues were up 12% in USD and up 11% in constant currency to $39.4 billion. Cloud license and on-premise license revenues were down 12% in USD and constant currency to $5.1 billion.

Fiscal year 2024 GAAP operating income was $15.4 billion, and GAAP operating margin was 29%. Non-GAAP operating income was $23.1 billion, and non-GAAP operating margin was 44%. GAAP net income was $10.5 billion, while non-GAAP net income was $15.7 billion. GAAP earnings per share was $3.71, while non-GAAP earnings per share was $5.56.

The board of directors declared a quarterly cash dividend of $0.40 per share of outstanding common stock. This dividend will be paid to stockholders of record as of the close of business on July 11, 2024, with a payment date of July 25, 2024. Current dividend yield stays at 1.29%.

Oracle’s notable achievements in fiscal Q4 2024

In the fourth quarter of the fiscal year 2024, Oracle Corporation achieved several notable milestones, which we highlight below:

Revenue Growth: Oracle reported total revenues of $53.0 billion for the fiscal year 2024, marking a 6% increase in both USD and constant currency. Notably, cloud services and license support revenues grew by 12% (according to Oracle financial report).

Cloud Momentum: The company’s bookings signaled strong momentum in their cloud business, with double-digit revenue growth expected to continue into the next fiscal year, driven by high demand for artificial intelligence solutions. In the fourth quarter, Oracle secured the largest sales contract in its history, driven by substantial demand for training large language models and unprecedented sales levels for OCI, autonomous, fusion, and NetSuite. The RPO reached $98 billion, an increase of $18 billion from the third quarter, and a 44% rise year-over-year from $68 billion the previous year.

Our view on Oracle’s cloud business: The company is transitioning from one-time non-recurring license revenue to larger strategic customer commitments for multi-year cloud revenue. Oracle’s management anticipates the cloud revenue will further accelerate the company’s revenue growth rates. This aligns perfectly with Oracle’s objectives. Oracle’s announcements also strengthens our view that Oracle’s overall revenue, earnings, and cash flow performance, along with their growth rates, will visibly improve and accelerate in 2025-2026.

Performance Obligations: Oracle’s total remaining performance obligations (RPO) increased by impressive 44% to $98 billion, reflecting the company’s strong pipeline and future commitments.

Earnings Call Highlights: During the earnings call, Oracle emphasized significant new customer acquisitions and expansions, particularly in their cloud and AI sectors, which were key drivers of their financial performance.

Emergence of Oracle cloud business will drive profitability in 2025

During the Conference Call Oracle’s CEO highlighted several important points:

Growing pipeline of customer contracts: Oracle secured numerous substantial contracts in Q4 2024, with a significantly larger number of deals in the works. About 39% of the total remaining performance obligations (RPO) are projected to be recognized as revenue within the next 12 months. This trend highlights customers’ increasing preference for larger contracts, driven by the tangible benefits they have experienced from Oracle Cloud services.

Focus on Cloud business: In the fourth quarter, Oracle management made the decision to leave the advertising industry, which had generated around $300 million in revenue for fiscal year 2024. Additionally, Oracle will no longer be separately reporting the results of the Cerner business. Although Cerner is expected to experience modest growth in both revenue and operating margin throughout the year, it is now functioning in a growth phase, making separate reporting unnecessary.

Strong guidance for the fiscal Q1 2025:

• Total revenue for Q1 are expected to grow from 6% to 8% in constant currency.
• Total cloud revenue is expected to grow from 21% to 23% in constant currency and 20% to 22% in USD.
• Non-GAAP EPS is expected to grow between 11% to 15% and be between $1.33 and $1.37 in constant currency.
• Non-GAAP EPS is expected to grow between 10% to 14% and be between $1.31 and $1.35 in USD.

Our view – Oracle’s key growth drivers for 2025-2026

Oracle has provided guidance for fiscal year 2025, indicating that they expect double-digit revenue growth. This optimistic outlook is driven by strong demand for their artificial intelligence (AI) solutions. Oracle has emphasized that the continued robust demand for AI will significantly contribute to their sales growth throughout the fiscal year 2025. In our view, there are several key drivers, which we foresee for Oracle revenue and profitability for 2025-2026:

For detailed insights please subscribe to our Premium Or Professional Service

Partnerships:

Oracle and Google Cloud Partnership:

• Oracle and Google Cloud have announced a groundbreaking multi-cloud partnership. This collaboration allows customers to combine Oracle Cloud Infrastructure (OCI) and Google Cloud technologies for application migrations and modernization.
• Google Cloud’s Cross-Cloud Interconnect enables customers to deploy general-purpose workloads across both clouds without cross-cloud data transfer charges.
• Later this year, a new offering called “Oracle Database@Google Cloud” will be available, providing high-performance Oracle database services with feature and pricing parity with OCI.
• This partnership benefits enterprises across various industries, including financial services, healthcare, retail, and manufacturing.

Renewable Energy Commitment:

• Oracle aims to power its global operations with renewable energy by 2025. Already, its European Cloud regions run on 100% renewable energy, and 51 offices worldwide use renewable energy sources (according to Oracle data)

Oracle Global Partners:

• Oracle collaborates with partners globally.?Companies working with Oracle in three or more regions in APAC, EMEA, Japan, Latin America, or North America are recognized as Oracle Global partners.

Oracle and Microsoft partnership:

• Oracle Database@Azure is now available in the?Microsoft Azure Germany West Central region?in Frankfurt, marking its debut in Europe.
• This service will also run in additional regions, including Australia East, Brazil South, Canada Central, France Central, Central India, Italy North, Japan East, Southeast Asia, Sweden Central, United Kingdom South, Central United States, South Central United States, and United Arab Emirates North.
• The expansion should demonstrate the commitment to streamlining workload migration to the cloud, combining Oracle’s services with Microsoft’s Azure AI capabilities for business innovation.
• Unified Multi-cloud Deployments: Enterprises can now deliver their Oracle services through Azure’s console, simplifying multi-cloud deployments.
• The partnership addresses the challenge of integrating offerings from multiple vendors, allowing customers to benefit from both Oracle and Azure services

For detailed insights please subscribe to our Premium Or Professional Service

Strategic focus on Cloud business:

In 2025-2026, Oracle should continue to demonstrate significant strengths that solidify its market position, in our view:

Robust Cloud and License Revenue Growth: Oracle has shown strong performance in the cloud segment, with substantial revenue growth in cloud services and license support. This growth signifies Oracle’s strong market position and its ability to capitalize on the increasing demand for cloud solutions going into the next quarters and years.

Innovative Autonomous Database: In March 2024 Oracle has introduced the Oracle Globally Distributed Autonomous Database, leveraging its proven sharding technology. This innovation reflects Oracle’s commitment to providing cutting-edge database management solutions that enhance performance, scalability, and reliability. For your information, sharding?is a database partitioning technique used to enhance scalability in blockchains.

Investment in Research and Development: In May 2024 Oracle expanded its research and development (R&D) capabilities in Morocco, aiming to grow its local workforce to?1,000 IT professionals. This investment should accelerate the development of cutting-edge technologies that address customer challenges worldwide. The R&D center in Casablanca focuses on areas such as artificial intelligence, big data, cloud computing, and cybersecurity. In our view, Oracle’s investments in R&D highlight its focus on innovation as a key to success. These investments enable Oracle to stay ahead by developing advanced technologies and improve its existing products and services.

Comprehensive Cloud Infrastructure: Oracle’s cloud infrastructure continues to be a major strength, offering a wide array of services such as the Oracle Maximum Availability Architecture (MAA) and Oracle GoldenGate for data replication and high availability. These services ensure that Oracle’s cloud offerings are robust and reliable.

For detailed insights please subscribe to our Premium Or Professional Service

Investments in Artificial Intelligence:

• AI investments play a crucial role in Oracle’s growth strategy.
• In Q4 alone, Oracle signed over 30 AI sales contracts totaling more than $12.5 billion, including a significant deal with OpenAI to train ChatGPT in Oracle Cloud.

We see that Oracle is committed to advancing AI innovation and will provide robust infrastructure for cutting-edge technologies, and this will drive Oracle’s profitability growth in 2025-2026.

Conclusion

For detailed insights please subscribe to our Premium Or Professional Service