Oracle Gets a Lift From the Cloud

by Tom Taulli | June 20, 2012 7:30 am

Oracle ORCL[1]Ahead of Oracle’s (NASDAQ:ORCL[2]) fiscal fourth-quarter report, investors were plenty apprehensive. But the company announced strong results, with earnings of $4.1 billion, or 82 cents a share. The consensus was for 79 cents. While Oracle faces some challenges — such as the slowing world economy — the company is getting a lift from cloud-computing technologies.

Over the past year, Oracle has invested heavily in the category. Besides creating its own applications — which are focused on large customers — the company has also spent close to $4 billion to acquire Vitrue, Taleo and RightNow Technologies. In all, Oracle is now on track to generate over $1 billion in annual revenues for its cloud business.

Oracle’s CEO and co-founder Larry Ellison is actually a pioneer in the market. Recall that in 1999 he provided the initial capital for NetSuite (NYSE:N[3]). The company is now one of the leaders in cloud-based enterprise resource planning (ERP).

But at his own company, Ellison waited to jump into the cloud. Essentially, he focused on maximizing the revenues from the traditional software business and delayed until cloud applications started to go mainstream. All in all, it looks like Oracle has been making a fairly smooth transition.

But the company’s cloud applications will be just one part of the story. Oracle also should benefit from it database business. After all, this technology is critical for delivering cloud applications.  In fact, one of the largest customers for Oracle databases is (NYSE:CRM[4]).

Now, Oracle still must deal with some headwinds. For example, it looks like the hardware business will be a drag. In the latest quarter, hardware revenues fell by 14% to $1.6 billion. But the good news is that this represents a small part of Oracle’s overall business.

Going forward, Oracle should grow at a decent rate. At the same time, the cash flow will keep adding up. Over the past year, it came to a hefty $13.5 billion. So, the company should have no problem funding its planned $10 billion share buyback, which should be another nice support for the stock.

Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He also is the author of “The Complete M&A Handbook”[5], “All About Short Selling”[6] and “All[7] About Commodities.”[8] Follow him on Twitter at @ttaulli[9] or reach him via email[10]. As of this writing, he did not own a position in any of the aforementioned securities.

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