Oracle delivers strong Q4 on NetSuite, Fusion ERP, HCM margins

Oracle has downshifted and downsized its hardware business and that's helping operating margins.

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Oracle delivered better-than-expected fiscal fourth quarter earnings and sales amid strong NetSuite and Fusion ERP and HCM subscription revenue.

The company reported fourth quarter earnings of $3.7 billion, or $1.07 a share, on revenue of $11.1 billion, up 1% from a year ago. Non-GAAP earnings for the fourth quarter were $1.16 a share.

Wall Street was expecting Oracle to deliver revenue of $10.93 billion with non-GAAP earnings of $1.07 a share. 

Oracle, which recently forged an integration pact with Microsoft Azure, said its cloud services and license support revenue was $6.8 billion with on-premise sales of $2.5 billion.

Co-CEO Safra Catz said Oracle delivered non-GAAP operating margins of 47% as it downsized its hardware business and sold cloud applications with better margins. "Our high-margin Fusion and NetSuite cloud applications businesses are growing rapidly, while we downsize our low-margin legacy hardware business. The net result of this shift away from commodity hardware to cloud applications was a Q4 non-GAAP operating margin of 47%, the highest we've seen in five years," said Catz.

SEE:

Oracle Fusion ERP and HCM cloud suite revenue were up 32% in fiscal 2019 and NetSuite showed growth at the same clip. See: NetSuite updates focus on global trade, launches budgeting and planning tools

Meanwhile, Oracle said it added 5,000 new Autonomous Database trials in the fourth quarter. Oracle ended its fiscal year with about $38 billion in cash and marketable securities.

On a conference call, Catz said:

While cloud license and on-premise license revenues were $2.5 billion, up 15%. In particular, technology license growth was up 19%, making it abundantly clear that customers are investing in the Oracle platform. The key database options necessary to run the Oracle Autonomous Database service grew 21%. I cannot stress enough the stability and growth of our base of customers quarter-after-quarter. Our customers are maintaining and expanding their Oracle environment. And in our BYOL, bring your own license model, they have the portability to use their licenses on-premise, in the cloud or via hybrid environment.

Co-CEO Mark Hurd said ERP and HCM annualized software as a service revenue is about $3 billion. Hurd added that Autonomous Database is keeping customers and adding new ones to the company. 

As for the outlook, Catz said revenue in the first quarter will grow between 1% and 3% in constant currency and 1% given currency headwinds. Non-GAAP earnings in the first quarter are expected to land between 80 cents a share and 82 cents a share. Constant currency non-GAAP first quarter earnings will be between 81 cents a share and 83 cents a share in constant currency.

Wall Street was looking for first quarter revenue of $9.36 billion, up 1.75% from a year ago, with non-GAAP earnings of 80 cents a share. Analysts are expecting Oracle to deliver fiscal 2020 revenue of $40.17 billion.

Catz said fiscal 2020 growth will improve in constant currency and earnings per share will post double digit growth.

For fiscal 2019, Oracle reported net income of $11.1 billion, or $2.97 a share, on revenue of $39.5 billion.

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