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Analysts told investors in a note that they are upgrading the stock “after a solid F4Q print and 1Q guide that alleviated concerns key to our Sell thesis which centered primarily on mounting CapEx requirements to sustain growth in Gen2 OCI (while also diluting gross margin) and unabating market share losses in Oracle’s core database business.”
“Coming off the 4Q print, we were encouraged by the pronounced step-up in IaaS revenue growth to +77% (CC) vs. high-50’s from 1Q-3Q which we took as a clear signal that Oracle’s advertised price/performance advantage vs. the Hyperscalers is resonating w/ the market (both net new and existing customers), which should position the company for durable share gains despite its late entry into IaaS,” wrote analysts.
They also noted that Oracle guided to flat CapEx in F24 (after doubling spend in F22/23), which they feel is indicative of more efficient capital spending relative to GSe even amid robust demand for Gen2 OCI “that points to improving FCF generation exiting F23.”
“With solid performance in SaaS/ERP (back-office +24% CC), accelerating growth in IaaS, and a longer-term opportunity to convert on-premise database customers to the cloud, we are increasingly constructive on Oracle’s ability to deliver on its F26 revenue target of $65bn (w/ 45% op. margins),” added analysts.
“However, we prefer to remain on the sidelines as we believe the company’s valuation now appropriately reflects accelerating top and bottom-line growth at 30x F25E FCF (in-line/above large-cap peers).”
