A lift in Oracle's (ORCL) cloud business has launched its stock higher in Wednesday trading.
The Redwood City, Calif., company posted a 40% jump in third-quarter cloud revenue to $735 million late Tuesday, and that has propelled the company's profit up into the stratosphere. Oracle said that the gross margin in its cloud segment alone rose to 51% from 43% the previous quarter. The company said that its goal is for 80% margins over time.
Oracle expects $1.5 billion in annualized recurring revenue bookings from its cloud services for the year.
The strong results boosted the company's stock after hours Tuesday, and the rally has continued into trading today, with shares up more than 4% to about $40.38 at midday.
Real Money's Jim Cramer was impressed by the company's "unbelievably good conference call." Despite competition from pure-play cloud-service companies such as Salesforce.com (CRM) and Workday (WDAY), "This is a company that just refuses to play dead," Cramer said.
A choir of bulls in the analyst community were also out in force, singing Oracle's praises today following the earnings release.
Bernstein, Jefferies and Drexel Hamilton analysts all reiterated their Outperform and Buy ratings for the company. Bernstein and Drexel Hamilton both have a $51 price target while Jefferies reiterated its $50 price target.
"We believe the worst of this cloud transition is behind Oracle and our model indicates the company is past the trough in its operating profit cycle. In our view, Oracle offers investors the characteristics of a more defensive tech stock with the benefits of a rapidly growing cloud portfolio," wrote Drexel analyst Brian White.
Not every analyst was bullish on the company, however, with Berenberg reiterating its Sell rating on the company because of the stranglehold Salesforce.com, Microsoft (MSFT) and other competitors still have on the market.
"We believe that the cloud-enabled enterprise applications have reached a certain level of maturity where the mass adoption (and therefore the expansion of that total addressable market) is driving the growth. While it is still too early to predict who the ultimate winner will be, we know (from both SAP's and Salesforce.com's recent results) that the general demand is strong for all cloud vendors," wrote Berenberg analyst Gal Munda.
Oracle's chances for success is at a critical juncture amid a rapidly changing industry. Based on the company's latest quarter, it stock is well positioned for short-term gains.
This chart of ORCL, above, shows a two-month rally taking ORCL back above the 50-day moving average which is now rising. Prices have also cleared the 200-day average line. The On-Balance-Volume (OBV) line is steady with some small improvement and the Moving Average Convergence Divergence (MACD) oscillator is bullish," said Real Money chartist Bruce Kamich.
"In this weekly chart of ORCL, above, we can see that prices have rallied above the 40-week moving average line. The OBV line is hopefully steady and the MACD oscillator has made a bullish divergence from the price action since September. Considering the position of our short and longer term indicators, we would look for ORCL to retest resistance in the $44-$46 area," Kamich concluded.