Oracle Corporation Is Right on Amazon’s Cloud – Buy ORCL Now!

Oracle Corporation (ORCL) has been a tech heavyweight for many years now, but in the technology sector, you can never fall asleep at the wheel. Change happens fast, and if you don’t successfully adapt or embrace change, one-time behemoths can crumble (or disappear entirely) overnight. Shouts to BlackBerry (BBRY).

Oracle Corporation Is Right on Amazon’s Cloud – Buy ORCL Now!Thankfully, Oracle is in no danger of “BlackBerrying” itself up, as fiscal third-quarter earnings just showed. Specifically, Oracle is following in Amazon’s (AMZN) footsteps and embracing the cloud, nebulous and airy as it may be.

ORCL stock owners should take this as a major positive, and when you dig through some of last quarter’s numbers you’ll see why. AMZN stock owners (like myself) will be excused for being a little less enthused.

Oracle Q3 Earnings By the Numbers

Shares of Oracle are up over 4% Wednesday, which is a tidy sum for a $170 billion company with fairly predictable earnings and revenue patterns. It’s certainly no AMZN, which frequently swings 10% to 20% higher or lower after earnings, depending on the magnitude of its usually unthinkable beat or miss.

ORCL stock doesn’t fluctuate like that due to recurring revenue from its software licensing business. In the quarter ending Feb. 29, Oracle posted revenue of $9.01 billion, below the $9.12 billion analysts expected and down 3% from the year before.

Per-share earnings, however, did not disappoint. Non-GAAP EPS of 64 cents was two pennies more than what most on Wall Street thought ORCL stock would earn, as lower tax rates gave shareholders a nice little surprise.

AMZN Still #1 in the Cloud … For Now

Okay, so those are the numbers. Now it’s time for the exciting figures: ORCL posted phenomenal growth in cloud revenues, roaring 40% higher year-over-year to $735 million. Excluding the impact of a stronger dollar, cloud revenue would’ve jumped 44%.

That’s really, really impressive growth, especially when ORCL stock trades at just 19 times earnings. But don’t take it from me, take it from Oracle CEO Safra Catz, who doesn’t shy away from braggadocio:

“Our Cloud SaaS and PaaS revenue growth rate accelerated to 61% in constant currency in Q3. This dramatic revenue increase drove our non-GAAP SaaS and PaaS gross margins up to 51% in Q3 as compared with 43% in Q2. Our cloud business is now in a hyper-growth phase. Our gross margins are climbing toward our target of 80%. These two factors will ignite substantial EPS and cash flow growth over Oracle’s next few quarters.”

That last sentence there. It’s one of the most beautiful declarations you’ll ever read in an earnings report. Poetry.

It would not be the last time Oracle’s Q3 FY2016 earnings press release waxed poetic, bringing tears to the eyes of hedge fund managers, technology analysts, and individual investors alike.

I’ll let the press release deliver the news, as only it can:

“Oracle also announced that its Board of Directors authorized the repurchase of up to an additional $10 billion of common stock under its existing share repurchase program in future quarters.”

$10 billion! That’s nearly 6% of all outstanding Oracle stock! And still, it pays a 1.5% dividend and trades at a forward price-earnings of just 13.7. Amazon, by contrast, trades for 67 times forward earnings, while Microsoft (MSFT) has a much more reasonable — but not Oracle-esque — forward P/E ratio of 17.5. What’s more, Salesforce (CRM) trades for 54.7 times forward earnings.

If you’ve harbored any doubts about ORCL stock recently due to its lackluster performance, let them disappear. Oracle is doing quite well for itself, although frankly I feel it’s unloved at current valuations.

In today’s market, if you’ve got some extra cash laying around and want to pick up a great long-term stock at a dirt-cheap price, buying ORCL stock right now certainly isn’t the worst idea.

As of this writing, John Divine was long AMZN, although he’s taking a serious look at making an investment in Oracle after this story. If he does, he’ll take one at least 72 hours after it has published. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.

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