Oracle Corp. (Nasdaq: ORCL) soared 6 7/8 to 32, or 27 percent, on heavy volume Wednesday after its fourth quarter results creamed expectations.
In early trading, more than 33 million shares had already changed hands.
In fourth quarter results released Tuesday after market close, the world's second-largest software vendor posted net income of $527 million, or 36 cents a share. First Call's survey of 30 analysts predicted earnings of 32 cents a share.
Overall fourth quarter sales increased 22 percent, to $2.9 billion from $2.4 billion in the year-earlier period, when Oracle earned $403 million, or 27 cents a share. Most important for Oracle's future prospects, the company's applications revenue -- meant to be Oracle's growth engine, but a disappointment in recent quarters -- rose a stronger-than-expected 28 percent. Oracle's traditional database business picked up 25 percent. Services revenue grew 22 percent year-over-year.
Analysts upgraded Oracle and increased estimates across the board. Credit Suisse First Boston analyst Wendell Laidley upped his rating Wednesday to "strong buy" from "buy," with a price target of $34. Warburg Dillon Read analyst Andrew Roskill raised his rating on Oracle Wednesday to "buy" with a target of $39. Chris Shilakes, an analyst with Merrill Lynch, upgraded Oracle to "buy" from "accumulate," with a target of $37. Merrill Lynch also raised estimates for fiscal year 2000 to $1.07 from $1.05.
"Pipeline into first half of fiscal year 2000 looks to be accelerating and a raft of new products for e-commerce is driving the top line," said Shilakes, in a research note. "This could help to boost psychology in the entire enterprise software sector."
In addition to the strong results, analysts were impressed with Oracle's outlook.
"We don't see anything that will lead us to believe that anything is slowing down," Oracle CFO Jeff Henley said during a conference call with analysts. "The pipeline looks good and it looks strong at this point."
Company observers had been nervous after Oracle's disappointing third quarter, but the fourth quarter saw all business segments improving, executives said. "It's the most balanced quarter I can remember ever between products, applications and geography," said Ray Lane, Oracle's chief operating officer. "Q3 was clearly an anomaly."
The company doesn't have clear visibility in the near term, and said it's still unsure about Y2K effects on spending for the next six months. However, quotas for all representatives have been raised and simplified for fiscal 2000. Oracle also plans to boost its R&D spending, said Lawrence J. Ellison, Oracle founder and CEO.
Oracle expects to complete its transformation to a completely Internet-centric business by June 2000, said Ellison. He also reiterated his company's plan to cut costs by $1 billion over 18 months by implementing its own software, though he moderated the statement. "That ($1 billion) is a target," Ellison said. "Those of you who are lawyers listening to this, that is not something we are guaranteeing or swearing to in blood."
In light of declines seen by other enterprise software vendors, Oracle's ability to boost that segment of its business is especially impressive, said Ellison said. The company also boosted its front office software business past every competitor but Siebel Systems Inc. (Nasdaq: SIEB), and actually grew faster than Siebel, Ellison said.
Oracle executives were also pleased with the continued strength in databases. The company cited database research from Dataquest showing Oracle with 61.1 percent of the Unix market and 47.3 percent of the Windows NT market.
The results should be welcome on Wall Street, where many had reduced their expectations following Oracle's analyst meeting last month. John Puricelli, an analyst with A.G. Edwards Inc., had expected 32 cents a share for earnings., with a revenue target of $2.7 billion. "I'll be looking for the revenue split -- where the revenue comes from," Puricelli said, prior to the earnings release. "And how they got to their numbers."
Puricelli noted Oracle hit its third quarter numbers courtesy of one-time items. "Expectations are out of whack," he said, adding that applications growth has been erratic for the last six quarters.
As with most vendors of corporate management software, Oracle has been hurt as IT departments cut back spending on anything deemed risky -- like databases and enterprise resource applications -- because of concerns about Y2K problems. "Companies will not buy anything that introduces risk to their networks," Puricelli said.
Thomas Hensel, analyst at Everen Securities, expected $2.67 billion in revenue with $1.24 billion in licensing and $1.4 in services.
-- Larry Dignan contributed to this report.