Oracle Shares Leap on Success in Cloud

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The pressure was on Oracle Corporation (ORCL) Wednesday, as it reported second quarter earnings after the market closed. The software giant had missed analysts’ expectations five out of the last six quarters. What’s more, both Silicon Valley and Wall Street were still nervous about Larry Ellison’s announcement in September that he was stepping down as head honcho. His appointment of two co-chiefs merely exacerbated anxieties.

orcl oracle stockThe high-tech stalwart didn’t disappoint. Oracle’s second-quarter 2014 earnings per share (EPS) came in at 69 cents on $9.6 billion in revenue, beating analysts’ consensus estimates of 68 cents in EPS and revenue of $9.51 billion. The stock jumped at Thursday’s open and was trading at 44.40 a share by late morning, a gain of $3.24 or nearly 8% since the prior day’s close.

It was a reassuring performance, sure, but here’s why the stock is rallying: Oracle’s second quarter revenue from cloud-based operations leaped a staggering 47% compared to the same quarter a year ago. That growth is crucial for the long-term viability of the company.

Cloud Bet Pays Off

The impressive jump in cloud sales confirms the wisdom of Oracle’s early emphasis on cloud computing and indicates that its once-maligned strategy is working. A long-time leader in database applications and other software, Oracle also benefits from its huge base of 400,000 customers in more than 145 countries.

In a technology industry constantly riven by a bewildering pace of change, cloud-based computing remains one of the most durable trends. For their conventional IT operations, companies operate expensive prepackaged software and proprietary applications that involve fees, upfront costs and expensive maintenance. Hiring a sufficiently trained IT department to oversee and continually update these systems boosts internal costs.

Enter the cloud. Web-based cloud operators host software applications at a central location and provide access to corporate customers through the Internet for a subscription fee. This obviates the customers’ need to invest in server infrastructure and data storage and also provides a scalable solution without the capital costs.

Oracle foresaw this revolution in computing and bet the farm on it at a time when many analysts thought it was a mistake. Among its key acquisitions in the cloud space was cloud-service marketer Responsys. Oracle also bought RightNow Technologies in 2011 for $1.5 billion, Taleo in 2012 for $1.9 billion, Eloqua in 2012 for $810 million and Acme Packet in 2013 for $2.1 billion.

All of these acquired companies formerly competed among themselves as cloud-based software solutions companies. The consolidation of their expertise and customer networks under one roof should drive Oracle stock well into the future.

Oracle Stock: The New Nifty Fifty

With tech sector booms and busts still fresh in their memories, many investors are hesitant to invest in technology stocks. This reticence is especially common among income investors, who instinctively shy away from hot tech firms.

But the fact is, many mature technology companies — Oracle among them — offer a blue chip combination of growth and safety. Their year-over-year growth may have moderated from their heady early days, but they still offer market-beating gains with less risk than their smaller cap brethren.

As such, they’re akin to the “Nifty Fifty” stocks that our fathers advised us to buy and hold. With a shrewd and farsighted strategy, a market cap of $182.39 billion, proven year-over-year growth, and a yield of 1.2%, Oracle stock is a nifty choice for any portfolio.

As of this writing, John Persinos did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2014/12/oracle-stock-surge-orcl/.

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