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Oracle Corp ORCL

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Oracle’s Cloud Software Growth Offsets Legacy Declines in Q4; Raising FVE to $65

Julie Bhusal Sharma Equity Analyst

Analyst Note

| Julie Bhusal Sharma |

Oracle’s fourth quarter surpassed our GAAP earnings expectations--slightly due to revenue growth, but largely due to unforeseen tax benefits from several discrete items. While the reasons for the beat are mostly unexciting, management’s take on growth for its largest and most promising segment, cloud service and license support, for the next quarter, was higher than we expected, and prompts us to boost our confidence in top-line growth expectations. This growth increase is partially offset by incorporating a higher long-term tax rate of 24% based on our probability-weighted tax assumptions for the U.S. corporate tax rate. As a result, we are raising our fair value estimate to $65 per share from $58 per share for narrow-moat Oracle. Shares are down 5% upon the news, trading near $78, leaving the narrow-moat stock still overvalued, in our view. Notably, our fair value does not assume Oracle’s obsolescence due to increasing cloud workloads--but rather, include margin expansion and top-line growth. However, we still expect Oracle to lose market share as it does not keep pace with its rapidly expanding addressable market.

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Company Profile

Business Description

Oracle provides database technology and enterprise resource planning, or ERP, software to enterprises around the world. Founded in 1977, Oracle pioneered the first commercial SQL-based relational database management system. Today, Oracle has 430,000 customers in 175 countries, supported by its base of 136,000 employees.

500 Oracle Parkway
Redwood City, CA, 94065
T +1 650 506-7000
Sector Technology
Industry Software - Infrastructure
Most Recent Earnings Feb 28, 2021
Fiscal Year End May 31, 2021
Stock Type Slow Growth
Employees 136,000


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