So what kind of year did Oracle have? Oracle doesn’t think of it this way but the year ended for it on Nov 30, 2007. I say that because IBM and SAP and many other large software suppliers (except the obvious, the largest) report their annual results on a calendar-year basis. I may be stating the obvious but it is easier for people who build investment research models to adjust Oracle’s trailing 12 months ending Nov 30 to the other leaders than to adjust all the others to Oracle’s May 31 fiscal year ending.
After backcasting for Oracle’s acquisitions in 2006 and 2007, Research 2.0 estimates that the database/application software market leader grew all types of revenue about 16% in the 12 months ending November 30, 2007 vs. the 12 months ending Nov. 30, 2006. The difference between our estimate and the higher growth rate reported in press releases is due to the fact that the press release does not take into account the timing of such acquisitions as Hyperion, Agile, Stellent, SPL Worldgroup, MetaSolv and others. Oracle itself normalizes for this difference in its most recent 10-K filing, saying that it grew its proforma revenue 13.0% in the 12 months ending May 31, 2007 (vs. the 12 months ending May 31, 2006). With our estimate of 16% trailing-12-month growth six months later, the company certainly kept the needle going in the right direction.
The company highlighted software license growth rates, as opposed to what it calls “license updates and product support†in its conference call. It looks like there is very aggressive cross selling to all of its new installed base in progress. Oracle says there is still a lot of opportunity ahead of it. Dividing license revenue from support revenue gets a little tricky because every company accounts for the two a little differently. We believe it makes more sense to look at the combination of the two for the reasons outlined in the most recent Research 2.0 report on Oracle (and all our software analyses).
Our long-term valuation estimate that Oracle is now fairly priced in the low $20s, as outlined in that Research 2.0 report, holds because it already reflected the growth that Oracle realized in its Quarter 2 and gave guidance to for the rest of its fiscal year. It looks like the market saw these results coming but it’s always nice when theory matches reality.
As for competitors, we won’t know for sure until January when we hear from IBM, SAP and get the first 6 months of FY2008 results from Microsoft. But Oracle continued to outgrow IBM, and has pulled neck and neck with SAP in terms of company growth rates. Exchange rates make the comparison tricky however. More important, while the initial view in this blogpost looks at the two companies overall, the Research 2.0 report on Oracle looks at the applications businesses head to head.
Oracle is almost keeping pace with Microsoft. Microsoft said in its recent Q1 conference call that its growth rate was unusually high so presumably that statement applies to Microsoft’s 24% year to date growth as well. If that growth rate comes down a bit after the fourth calendar quarter, the two software suppliers’ growth rates will be more comparable. Again, it is more important to look at Research 2.0’s estimates of how Oracle ERP does against Microsoft ERP, how standalone Oracle applications do against standalone Microsoft applications, and so forth. But you’ll have a hard time finding anything to complain about over your eggnog in these results.
– Dennis Byron
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