According to the US Department of Defense, Google (Alphabet), Oracle Corp (Oracle), Amazon (Amazon) and Microsoft Corp. (Microsoft) will share a $9 billion hybrid contract to provide secure cloud services to the Pentagon worldwide. Oracle Corporation's results will be announced this coming Monday, 12 December. How could this contract affect its results and what could we expect from the upcoming report?
Oracle Corporation financial results
Oracle Corporation (Oracle) is an American company that develops and sells database management software and information technology. The company was founded in 1977 and is now one of the market leaders in this segment. Its products include relational database management software, cloud-based data management systems, enterprise data management software and data management tools for the financial services industry. Oracle is also part of the Nasdaq index (US100), which largely takes into account the listing of technology company stocks.
Source: Conotoxia MT5, US100, Daily
The company is valued at US$212 billion and the latest Q2 readings showed revenue up 17.6% y/y (US$11.4 billion). Operating profit, however, fell 23% year-on-year (US$2.6 billion) in the period. The net profit margin for the company currently stands at 13.15%, with the average for the information technology sector at 12.21%. The data from the latest readings appears to be significantly undervalued, as the company's long-term average net profit margin was around 23%, which would indicate a market advantage.
What may seem interesting is that the company's results have historically been characterised by high seasonality. The worst was usually the third quarter, from which results on average grew continuously until the second quarter of the following year. Therefore, in Monday's Q3 2022 report, we could expect a deterioration in results, which may also be influenced by the negative trend observed for the sector as a whole since the beginning of this year.
How might a government contract affect business?
Reuters reports, "The separate contracts, which carry a notional top line of $9 billion, run until 2028 and will provide the Department of Defense with enterprise-wide, globally available cloud services across all security domains and classification levels." However, we do not know the size of the contract split between the companies, but assuming it bordered around equality, it would be around $2.25bn per company, giving an average of $375m per year. Taking this into account, average revenues for Oracle could increase by around 1% year-on-year.
What does Wall Street think of Oracle's share price?
According to the Market Screener portal, the company has 31 recommendations, and among them the majority are those with the content: "Hold". The average target price is set at USD 86.04, more than 10% above the last closing price. The highest target price is at USD 120 and the lowest is USD 55.
Source: Conotoxia MT5, Oracle, Daily
Grzegorz Dróżdż, Junior Market Analyst of Conotoxia Ltd. (Conotoxia investment service)
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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