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Oracle shares spike on earnings news

Shares in the database software maker soar as its Q2 earnings report beats Wall Street estimates.

Shares in database software maker Oracle soared this morning following the company's better-than-expected earnings report.

As reported yesterday, Oracle posted a 46 percent rise in quarterly profits.

Shares rose as much as 7.2 percent to 37 7/16, a 52-week high, in early morning trading.

Several analysts raised their Oracle earnings estimates today. Gruntal & Company reiterated its "buy" recommendation, and raised its estimate to $1.28 per share from $1.21 per share for fiscal 1999, and to $1.50 from $1.45 for fiscal 2000. Credit Suisse First Boston said it has raised its per-share target price to 45 from 35.

The Redwood Shores, California-based company announced net income of $274 million--earning 28 cents per share--for its second quarter ended November 30. Net income jumped 46 percent compared to the like period last year, when Oracle tallied $187 million, or 19 cents per share.

Wall Street had predicted earnings of 24 cents per share, according to First Call.

Oracle's quarterly revenue jumped 27 percent from last year's second period, to $2.1 billion from $1.6 billion. Its market-dominant database business (which includes software, tools, and related services) grew 25 percent to $1.5 billion, and $5.8 billion for the past four quarters.

"Although people were saying the database market was dead a year ago, we think it's still very attractive," Jeff Henley, Oracle's chief financial officer, said in an interview.

"We've averaged growth in the high 20s for the last four quarters," he noted, adding: "We're delighted with our database performance in the Americas and Europe."

Revenue in database server licenses rose 26 percent for the quarter compared to year-ago figures. But in the Americas and Europe, licensing revenues jumped 31 percent year over year.

Asia continued to drag down overall performance with a 7 percent increase. Despite such limited growth, Henley noted, "At least Asia has done better than it has in the past five quarters."

He estimated that a full recovery in that region is not likely for several years, however.

Meanwhile, over in the applications business, where Oracle continues to hold a second-place standing behind SAP, revenue grew 35 percent to $578 million in the second quarter and $2.1 billion for the past four quarters.

Revenue from the company's applications licenses grew 19 percent year over year. In the Americas, licenses rose 31 percent.

"The Americas tend to be a leading indicator, so we're encouraged that this will bode well for our worldwide performance," Henley said.

Consulting services and training revenue grew 34 percent while license and support revenue grew 25 percent.

But analysts pointed out that Oracle's growth for the most recent and future three quarters will be measured against weak year-ago comparisons.

"This is the first quarter they've posted since the company blew up last year, giving them easy comparisons," said Jim Moore, an analyst with BT Alex. Brown.

Moore pointed out that applications licensing competitors such as PeopleSoft posted a 30 percent increase in this particular area during the third quarter over year-ago figures, and J.D. Edwards showed a 47 percent jump.

But Henley said Oracle has beaten expectations for the past four quarters. "As long as analysts make reasonable expectations, we hope to meet and beat expectations," he stated, adding that the company is in the early stages of its product cycle and it expects to "do quite well" in growing its licensing revenue.

"I'm not too worried about our execution. We've gotten much more focus than we've had in the past few years," he said.

Analysts do agree that Oracle has managed to disprove that the database market is fading away.

"I think they have clearly proven that and that any weakness is more of a company-specific phenomenon," said Wendell Laidley, an analyst with Credit Suisse First Boston.

Moore observed that Oracle is helping to drive its future database business by tapping into the Internet market. "They've positioned the Internet as an important new market for databases and are finding ways to be unique. That's important in this business," he said.

Larry Ellison, Oracle's chief executive, said in a statement that nine of the top ten business-to-business e-commerce Web sites use Oracle databases and that all top ten consumer e-commerce Web sites do likewise.

But Oracle is not without challenges ahead.

Microsoft's SQL Server 7.0, which is designed to attack the low end of the database market and give the company a good chance of capturing some of the market share currently controlled by Oracle, may give rise to a second wave of SQL Server fear in the second half of the year, Laidley said.

"SQL Server will have been out for six months and shown what it can do," he noted. Another concern that is expected to grow in the second half is less technology spending as companies deal with their Y2K problems, he added.