Oracle's Earnings Review：AI Again

As of June 12, Oracle has risen 44% year-to-date. After the company released its latest financial report exceeding expectations, it rose another 3.64% after hours. So how is the company's financial report performance this time, and is there room for the stock price to rise in the future?

In FY2023, the company's total revenue is US$50 billion, YoY+18%. In FY23Q4, the company's operating income was US$13.8 billion, YoY+17%. Among them, cloud service and license support revenue increased by 23% year-on-year to $9.4 billion, which is the company's main revenue driver. Cloud licensing and on-premises licensing revenue fell 15% year-over-year to $2.2 billion.

In addition, Cerner, an electronic medical record software service provider that completed the acquisition in June 2022, contributed US$1.5 billion in revenue this quarter. Excluding the acquisition, the company's revenue growth rate in FY23Q4 fell to 4% year-on-year. It is expected that in the next quarter, the benefits brought by the acquisition will not have a significant impact on the company's performance, and the company's revenue growth rate is expected to be at a high single-digit level (8%-10%).

Profitability and free cash flow are healthy. FY23Q4 non-GAAP operating profit was US$6.2 billion, YoY+10%, non-GAAP operating profit margin was 44%, a significant increase from the previous three quarters. Non-GAAP net income was $4.7 billion and EPS was $1.67. In addition, operating cash flow in fiscal year 2023 will be $17.2 billion, an increase of 80% year-on-year.

Due to frequent acquisitions, the company's debt ratio and leverage ratio are high. As of fiscal year 2023, the company's asset-liability ratio is as high as 99%, and the leverage ratio is as high as 85.37. The company's asset-liability ratio has exceeded 90% in the past three years, and has continued to climb from about 45% to nearly 100% in the past ten years. Although from the current point of view, the high debt ratio should not have an obvious negative impact on the company's operations, this risk is still worthy of vigilance. If the interest rate is lowered in the future, it should be able to reduce part of the interest expense for the company.

FY23Q4 cloud revenue (IaaS plus SaaS) was US$4.4 billion, YoY+54%. Among them, IaaS revenue is US$1.4 billion, YoY+76%, SaaS revenue is US$3 billion, YoY+45%. In the SaaS business, Fusion cloud ERP (SaaS) revenue was US$700 million, a year-on-year increase of 26%, slightly higher than the previous quarter, and NetSuite cloud ERP (SaaS) revenue was US$700 million, YoY+22%.

In the context of a generally sluggish macro environment, the company's cloud computing business can achieve such a high growth rate, which is generally considered to be a very good performance. On the one hand, it is because the cloud computing services provided by the company, whether it is IaaS or SaaS, have relatively high customer stickiness. On the other hand, it is also because the volume is relatively small and the growth is relatively easy.

According to the company's management, generative AI has driven the growth of the company's cloud services business. Oracle Chairman and CTO Larry Ellison announced that Oracle's Gen2 Cloud has quickly become the first choice for running generated AI workloads. NVIDIA is also using Oracle's GPU clusters, including one with more than 4,000 GPUs, for their AI infrastructure.

Oracle has the world's highest-performance, lowest-cost GPU cluster technology, and its GPU clusters are built using the highest bandwidth and lowest latency RDMA networks -- and scale to 32,000 GPUs. Cutting-edge companies working on LLM development, such as Mosaic ML, Ad AI, Kohill, and 30 other AI development companies, recently signed a $2 billion contract to purchase Oracle’s Gen2 Cloud.

Therefore, Oracle, as a provider of cloud computing infrastructure, will undoubtedly benefit from the entire wave of AI.