Handicapping Oracle’s November Q2 – Will the Momentum Continue?
Old habits die hard, and while we have generally resisted commenting on upcoming software earnings reports, given our long history following Oracle and that the company has done so well this year, we can’t help ourselves.
We did a number of checks with the usual types, industry analysts, deal advisory services, systems integrators, applications consultants, and various other field sources.
Since we no longer maintain a detailed earnings model for Oracle our comments will be considerably less specific when it comes to opining on specific estimates. As has been pointed out by a number of financial analysts the November quarter is a relatively easy compare given the timing of the Siebel deal. Rather our intent it to provide some qualitative inputs regarding direction and more specifically our sense as to whether Oracle will meet, beat or miss their earlier guidance for the quarter.
As has been the case throughout the year deal inquiry activity to pricing and contract specialists continues to be very, very busy. There are a variety of reasons behind the strength of activity. First, and perhaps most importantly, is that customers of a number of the companies Oracle acquired over the past 18 months or so (most notably PeopleSoft & JDEdwards, but also Siebel, Retek and others), have become more comfortable that Oracle will keep their promises regarding support and a long term migration plans. Consequently, Oracle is benefiting from pent up demand from the period when these customers had adopted a wait and see approach. Second, is that Oracle has been promoting new license plans such as “applications unlimited,” that has served to stimulate a review of the applications portfolios at a lot of companies. And last, but certainly not least, we continue to believe that the general IT spending climate has continued to improve.
Field contacts indicate that pipelines continue to be quite strong and steadily building, benefiting in part from a large number of customers that haven’t bought anything in several years coming back to the table. While the applications business arguably has a relatively easy compare owing to the timing of the Siebel deal, we do think it is important to mention that the year ago quarter did benefit from a couple of very large transactions. Our checks indicate that this quarter’s strength is being built on a broad base of good sized deals, more than a couple of isolated mega deals. Separately, we continue to hear very good things both not just about the applications business, but also the technology business. In particular we are hearing that Oracle is doing very well leveraging a number of the small acquisitions it did on the technology side, ranging from Times Ten, to Oblix and SleepyCat Software. Applications for database technology continue to expand with a great deal of interest in content databases and email management. Interest in Linux continues to build, and the field is very excited by the plan to offer support for RedHat Linux at half the cost than if it were provided by RedHat. While quotas continue to build, sales morale remains very good owing to the bevy of new products available. Furthermore, our contacts indicate that Oracle has been hiring a visible number of salespeople from various competitors, including archrival SAP.
Consultants and systems integrators checks are consistent with our other inputs, in that business appears to be quite healthy and that Oracle in particular has made significant strides in its applications business over the past year. These inputs are largely reflecting the trends in financial services, government, and retail verticals.
Conclusion – while it is difficult to say exactly what the stock is discounting, and though comparisons become increasingly difficult, our checks (U.S. only) strongly suggest that Oracle’s momentum is very much on track. We would not bet against this stock for the next six to nine months, despite the notable run up in valuation.
Legal Disclaimer Nothing herein constitutes an offer or solicitation to buy any security. Readers are advised to review their own financial situation, risk tolerance, and investment objectives as to any investment. Information provided here is based, in part, from sources believed to be accurate and reliable, although no representations or guarantees can be provided as to its accuracy or completeness.Blue Atlas Management, LLC is our official business entity for consulting related work. In addition, we also have a website for those of you who are interested in learning more a little more about our services http://www.blueatlasmanagement.com/. Please feel free to contact us at jmendelson@blueatlasmanagement.com, with any comments or questions.
We did a number of checks with the usual types, industry analysts, deal advisory services, systems integrators, applications consultants, and various other field sources.
Since we no longer maintain a detailed earnings model for Oracle our comments will be considerably less specific when it comes to opining on specific estimates. As has been pointed out by a number of financial analysts the November quarter is a relatively easy compare given the timing of the Siebel deal. Rather our intent it to provide some qualitative inputs regarding direction and more specifically our sense as to whether Oracle will meet, beat or miss their earlier guidance for the quarter.
As has been the case throughout the year deal inquiry activity to pricing and contract specialists continues to be very, very busy. There are a variety of reasons behind the strength of activity. First, and perhaps most importantly, is that customers of a number of the companies Oracle acquired over the past 18 months or so (most notably PeopleSoft & JDEdwards, but also Siebel, Retek and others), have become more comfortable that Oracle will keep their promises regarding support and a long term migration plans. Consequently, Oracle is benefiting from pent up demand from the period when these customers had adopted a wait and see approach. Second, is that Oracle has been promoting new license plans such as “applications unlimited,” that has served to stimulate a review of the applications portfolios at a lot of companies. And last, but certainly not least, we continue to believe that the general IT spending climate has continued to improve.
Field contacts indicate that pipelines continue to be quite strong and steadily building, benefiting in part from a large number of customers that haven’t bought anything in several years coming back to the table. While the applications business arguably has a relatively easy compare owing to the timing of the Siebel deal, we do think it is important to mention that the year ago quarter did benefit from a couple of very large transactions. Our checks indicate that this quarter’s strength is being built on a broad base of good sized deals, more than a couple of isolated mega deals. Separately, we continue to hear very good things both not just about the applications business, but also the technology business. In particular we are hearing that Oracle is doing very well leveraging a number of the small acquisitions it did on the technology side, ranging from Times Ten, to Oblix and SleepyCat Software. Applications for database technology continue to expand with a great deal of interest in content databases and email management. Interest in Linux continues to build, and the field is very excited by the plan to offer support for RedHat Linux at half the cost than if it were provided by RedHat. While quotas continue to build, sales morale remains very good owing to the bevy of new products available. Furthermore, our contacts indicate that Oracle has been hiring a visible number of salespeople from various competitors, including archrival SAP.
Consultants and systems integrators checks are consistent with our other inputs, in that business appears to be quite healthy and that Oracle in particular has made significant strides in its applications business over the past year. These inputs are largely reflecting the trends in financial services, government, and retail verticals.
Conclusion – while it is difficult to say exactly what the stock is discounting, and though comparisons become increasingly difficult, our checks (U.S. only) strongly suggest that Oracle’s momentum is very much on track. We would not bet against this stock for the next six to nine months, despite the notable run up in valuation.
Legal Disclaimer Nothing herein constitutes an offer or solicitation to buy any security. Readers are advised to review their own financial situation, risk tolerance, and investment objectives as to any investment. Information provided here is based, in part, from sources believed to be accurate and reliable, although no representations or guarantees can be provided as to its accuracy or completeness.Blue Atlas Management, LLC is our official business entity for consulting related work. In addition, we also have a website for those of you who are interested in learning more a little more about our services http://www.blueatlasmanagement.com/. Please feel free to contact us at jmendelson@blueatlasmanagement.com, with any comments or questions.
posted by jcm at 5:01 PM
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