Oracle Corporation (ORCL) offers products and services for enterprise information technology (IT) environments.
The company’s offerings include applications and infrastructure products and services that are delivered across the globe through multiple flexible and interoperable deployment models.
These include on-premise, hybrid deployments like the Oracle Cloud@Customer, and cloud-based avenues,
Oracle investors have been increasingly worried over the past several years amid concerns over the company's ability to meaningfully innovate in the cloud infrastructure space against behemoths such as Alphabet (GOOGL), Amazon (AMZN), and Microsoft (MSFT).
However, Oracle continues to produce robust net income levels, even if its net income generation has indeed remained rather stagnant for years.
Shareholder value creation is likely to be powered almost exclusively through Oracle stock repurchases, which artificially boost the company's per-share metrics.
In my view, Oracle remains, without a doubt, a cash cow that should continue to enjoy predictable and durable cash flows.
However, the lack of considerable growth could be indeed a serious concern as far as the firm's longevity goes in an ever-changing tech environment. For this reason, I am neutral on the stock.
Recent DevelopmentsOracle’s Q3 2022 results came in rather strong, with revenues growing 7% to $10.5 billion. The largest chunk of Oracle’s revenues were sourced from its Cloud segment, which comprised around 72.3% of the company's total revenues during the quarter.
While Oracle's growth remains indeed a fraction compared to that of its industry peers, it's worth noting that in Q3, the company recorded its highest quarterly organic revenue growth rate since it initiated its transition to the cloud.
More importantly, the big picture is that Oracle's overall revenue growth is being propelled by both the company's swiftly expanding Cloud Infrastructure and Cloud Applications businesses.
Specifically, Q3 Cloud Infrastructure revenue came in 47% higher year-over-year in constant currency. Cloud Applications' expansion was powered by Fusion ERP, which achieved growth of 35% in constant currency, and NetSuite ERP revenues which rose 29% in constant currency.
As a result, total Cloud revenues, which comprise Cloud Infrastructure and Cloud Applications, now feature an annualized revenue run-rate of over $11 billion a year. Thus, the company should end Fiscal 2022 with record revenues.
As far as the company's profitability goes, operating expenses increased 10% during the quarter as Oracle continued to invest in meeting its clients' growing demand for its cloud services.
However, gross margins for cloud services and license support remained rather rich at 84%. More importantly, management anticipates that full-year growth in gross profit dollars for cloud services and license support will grow compared to last year, implying strong margins in the upcoming quarter as well.
Now note that due to litigation-related charges totaling $4.7 billion, the company has recorded EPS of $1.30 during the first nine months of Fiscal 2022, significantly lower than the previous year's $3.26 over the same period.
However, this is only due to a one-off effect, which is the reason analysts expect adjusted EPS of around $4.76 for the year, which actually implies growth of 1.86% over Fiscal 2021.
Capital ReturnsIn order for Oracle to keep shareholders satisfied during the past decade, a period of relatively underwhelming growth relative to its industry peers, management's strategy to deliver value creation has been providing robust capital returns.
Oracle has increased its dividend-per-share for 12 consecutive years, with the latest dividend hike being by a considerable 33.3%. The company has already declared five $0.32 quarterly dividends, which is a bit underwhelming in terms of DPS growth consistency.
In any case, Oracle has six quarterly "chances" to grow the dividend before losing its current streak. The current annualized DPS rate of $1.28 combined with analysts' EPS estimate of $4.76 implies a rather healthy payout ratio of 26%.
In addition to dividends, Oracle has an extended track record of aggressive stock repurchases. During the first nine months of Fiscal 2022, Oracle repurchased around $15.6 billion worth of stock versus $12.9 billion in the comparable period last year.
Assuming the company buys back close to $20 billion worth per year (which is, in fact, below its historical average), this suggests a buyback yield of around 9.9%, which is rather massive.
To put Oracle's buybacks into perspective, the company has nearly halved its share count during the last decade alone. This has been a prominent EPS growth catalyst against somewhat flat net income levels during this period.
If we combine Oracle's dividend yield of around 1.6% with its buyback yield, Oracle features a combined investor yield north of 10%.
Wall Street’s TakeTurning to Wall Street, Oracle has a Moderate Buy consensus rating based on six Buys, 11 Holds, and one Sell assigned in the past three months. At $91.65, the average Oracle price target implies 10.5% upside potential.
ConclusionOracle enjoys rather predictable cash flows, which, combined with its high-margin business model, makes the company a cash cow.
On the hand, capital returns to shareholders are too juicy to ignore. Through Oracle's dividend and stock repurchases, shareholders are likely to enjoy double-digit annualized returns over the medium term.
On the other hand, and despite Oracle delivering the highest organic revenue growth in the cloud in over 10 years, the company could be falling behind its faster-growing industry peers. This could be an issue regarding Oracle's long-term prospects. Accordingly, I am neutral on the stock.
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The pandemic has advanced a push towards many sectors, which helped several people to ease their restriction-driven lives. Compelled to stay at home due to nationwide lockdowns, people engaged in activities that were once considered leisurely.
One such sector propelled by the pandemic was the video gaming industry, which attracted a huge fanbase during the last two years as people were glued to their mobiles, laptops, desktops, and cloud technologies to socialize and play games.
TipRanks Website Traffic Tool tracks the fastest growing websites with a focus on both Top Trending Websites and Websites Losing Traffic. The tool extracts data on the number of unique visits plus total visits to a company’s website, and helps to assess a company’s website traffic trends for the last month, quarter, or even over the last year. The data can be compared sequentially or year-over-year to see whether visitor traffic has increased or declined.
An upward trend in the graph indicates that the total number of visits to the website has increased and therefore, a reasonably good quarterly performance can be expected, and vice versa for a downward sloping graph.
What’s more, the tool gives an added advantage of gauging a company’s performance well before its earnings results. By using the tool, we have chalked down three video gaming companies that have witnessed unprecedented growth during the pandemic, and now are witnessing a downfall in website visits as people prefer to engage in more physical activities and traveling.
Let us see what the tool tells us about these companies' unreported quarterly performance before their results.
Take Two Interactive Software (TTWO)Two Take Interactive engages in the development, publishing, and marketing of interactive software games. Its products are designed for console systems, handheld gaming systems, smartphones, and tablets. The products are delivered through physical retail, digital downloads, online platforms, and cloud streaming services.
The company’s popular gaming titles include Grand Theft Auto, Red Dead Redemption, and NBA 2K. TTWO currently has a market cap of $17.82 billion. Its shares have lost 13.5% year-to-date amid the broader tech sector sell-off.
TTWO has several catalysts ahead which bode well for the company. Most noteworthy of them is the pending acquisition of Zynga (ZNGA) for $12.7 billion in a cash and stock deal. The acquisition is expected to close in the first quarter of TTWO’s fiscal year 2023, ending June 30, 2022. The deal will boost TTWO’s mobile gaming business with popular titles coming from Zynga’s portfolio like Farmville, Words With Friends, Empires & Puzzles, and Zynga Poker.
The second exciting event for TTWO is the launch of its much-awaited GTA VI series, which is scheduled for release somewhere between 2024 and 2025. With GTA V already declared a hit worldwide (over 160 million units sold with $5 million in sales in Q3) and listed among the five best-selling games, the launch of GTA VI is expected to rock the house too.
Moreover, in Q3, NBA 2K22 sold more than 8 million units and Red Dead Redemption 2 sold almost 43 million units globally.
Notably, Wall Street analysts have awarded the TTWO stock a Strong Buy consensus rating based on 14 Buys and two Holds. The average Take Two Interactive price target of $207.13 implies 34.1% upside potential to current levels.
TTWO’s Website Traffic Tool indicates a fall in the fourth quarter’s total visits. In February, Take Two Interactive’s website traffic recorded a 12,37% year-over-year decrease in monthly visits. Likewise, year-to-date website traffic growth decreased by 30.24% compared to the same period last year. Along similar lines, TTWO has projected a fall in its Q4FY22 revenue to be between $835 million and $885 million, well below its Q3 revenue of $903.25 million.
Electronic Arts (EA)Based out of California, Electronic Arts develops and delivers games, content, and online services for internet-connected consoles, mobile devices, and personal computers.
EA has a market cap of $36 billion currently. Its shares have lost nearly 5% year-to-date and it even gives out regular quarterly dividends with a current dividend yield of 0.54%. EA hosts several high-quality brands such as EA SPORTS FIFA, Battlefield, Apex Legends, The Sims, Madden NFL, Need for Speed, Titanfall, Plants vs. Zombies, and F1.
Electronic Arts' foray into sports games makes for a differentiating factor among other game developers, and a probable candidate for big tech firms who want to venture into the industry.
Remarkably, analysts on the Street have awarded the EA stock a Strong Buy consensus rating based on 13 Buys and three Holds. The average Electronic Arts price target of $162.81 implies 27.2% upside potential to current levels.
In its disappointing Q3FY22 results, the company missed both earnings and revenue expectations. Furthermore, as is evident from the Electronic Arts Website Traffic Tool analysis, there is a declining trend in the total number of visits to EA’s website. This is also supported by the company’s dimming Q4FY22 revenue forecast of $1.76 billion, which is marginally below the Q3 number of $1.79 billion.
In February, Electronic Arts’ website traffic recorded a 15.79% year-over-year decrease in monthly visits. Likewise, year-to-date website traffic growth decreased by 10.83% compared to the same period last year.
Roblox Corp. (RBLX)Roblox Corp., an online entertainment platform offering a wide range of online games for kids, teens, and adults. Roblox’s platform enables users to interact with each other to explore and develop immersive, user-generated, and 3D experiences.
Roblox currently has a market cap of $29.4 billion. Its shares have lost a whopping 49.4% year-to-date amid the rising interest rate scenario, turning away investors from growth stocks.
Undoubtedly, Roblox is one of the best-placed gaming stocks in the metaverse segment and has a lot of potential to capitalize upon, once the metaverse comes to full effect.
Wall Street analysts have awarded RBLX stock a Moderate Buy consensus rating based on nine Buys, three Holds, and one Sell. The average Roblox price target of $69.38 implies 38.7% upside potential to current levels.
In its weak fourth-quarter fiscal 2021 results, Roblox missed both earnings and revenue estimates. For the three months ending December 31, 2021, Roblox boasted of Daily Active Users (DAUs) of 49.5 million, and hours engaged by users stood at 10.8 billion, jumping 28% year-over-year.
In 2022, we see a declining trend in Roblox’s hours engaged by users, although DAUs are on a steady rise. In January 2022, hours engaged fell to 4.2 billion, and that number came down to 3.8 billion in February 2022.
This declining trend is also visible in Roblox’s Website Traffic Tool as studied by TipRanks. In February, Roblox’s website traffic recorded a 9.34% year-over-year decrease in monthly visits. Likewise, year-to-date website traffic growth decreased by 7.66% compared to the same period last year.
Points to PonderAccording to a Mordor Intelligence report, the Gaming Market has an expected Compound Annual Growth Rate (CAGR) of 8.9% over the 2022-2027 period, projecting the industry to reach $339.95 billion in 2027.
Although the near-term outlook remains fazed by difficult year-over-year comparatives, the long-term potential for the video gaming industry is highly attractive. The advent of the metaverse provides an added advantage to gaming companies, which are already providing virtual social experiences. Further technological advancements in gaming with more interactive game launches will also strengthen the user base for the companies.
With the easing of restrictions, people are venturing out more and this favors positively, especially for the mobile gaming segment. Add to that, improving internet connectivity with high bandwidth networks (5G) coupled with increasing adoption of smartphones by all age demographics, invariably boosts the segment.
The gaming industry is highly fragmented, with leaders such as Nintendo (NTDOF), Sony Corporation (SONY), and Microsoft taking the leads. The recently announced acquisition of Activision Blizzard (ATVI) by Microsoft (MSFT) has furthered the prospects of smaller companies becoming potential buyout targets for big techs, which also makes them attractive stocks to hold on to.
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