Oracle Corp Japan

TSE:4716

Earnings Call Analysis

Oracle's Revenue Growth and Strategic Developments in Q2

During the recent earnings call, Oracle executives highlighted key developments impacting revenue. Despite a slight decrease in gross profit margin for Q2, the overall margin remained stable over the first half of the year. They anticipate a revenue growth of 5% to 9% across their products and services. The introduction of 'Alloy', a new cloud service collaboration with NTT DATA, is expected to drive significant future revenue, although its impact won’t be realized until late 2025. Additionally, consistent hiring is planned to support strategic growth, focusing on essential roles rather than increasing headcount indiscriminately.

Navigating Through a Quarterly Rollercoaster

The most recent earnings call revealed a mixed bag of results for Oracle. In particular, investors learned that the second quarter reflected a reactionary decline in demand following a price increase in the previous quarter. This means that the surge in sales in Q1 did not carry through into Q2, leading to expectations of stabilization in the latter half of the year.

Stabilization of Margins

While the gross profit margin saw fluctuations attributed to changes in the sales mix, executives clarified that year-to-date margins held steady compared to the previous year. They emphasized a long-term perspective, noting that margins are expected to remain stable going forward, aligning with the company's history of maintaining similar levels of profitability.

Headcount Adjustments Indicate Growth Strategy

The company also highlighted personnel decisions, revealing a slight headcount increase of nine employees in the past three months. However, the management indicated that hiring would continue selectively, aiming to optimize personnel towards strategic areas essential for facilitating revenue growth. They remain cautious about not hiring indiscriminately, ensuring that any increase in workforce is justifiable.

Future Opportunities with Alloy

An exciting development mentioned during the call is the adoption of the Alloy offering by NTT DATA and Fujitsu. This unique program allows partners to integrate Oracle's cloud services with their environments, which is expected to capture significant market interest. While specific revenue contributions from this initiative have not been included in current forecasts, executives projected overall revenue growth of 5% to 9% for the year, attributing Alloy as a crucial component of long-term strategy.

Pricing Strategies in a Dynamic Market

The management discussed pricing strategies, noting that any future price hikes would be based on careful assessments, primarily influenced by the fluctuating value of the Japanese yen and general market conditions. The executives assured that the company does not engage in arbitrary price increases, aiming instead for a sustainable approach to pricing that reflects business realities.

Looking Forward: Revenue Guidance

As the company projects a revenue growth of 5% to 9% for the upcoming year, investors can derive optimism from the ongoing evolution of Oracle's offerings, especially Alloy. This initiative, along with the strategic hiring and cautious margin management, positions Oracle well to capitalize on future business opportunities while maintaining a focus on stable profitability.

Earnings Call Transcript 2025-Q2

[Unknown Analyst]

[Audio Gap]

[Yuki Nishio, executive]

So the first question is from Tsuruo-san of Citigroup. So first of all, there was a price increase and there was a last-minute demand coming in Q1. And therefore, reactionary decline was observed in Q2. But do you think this reactionary decline has been over in Q2, and you will not experience this from there onwards? And in the second half, what would you expect the rate increase, the revenue increase of on-premise license?

[S.Krishna Kumar, executive]

So firstly, yes, the reactionary decline in Q2 is more or less over. I don't see that rolling into Q3 and Q4. When I gave my guidance for the full year -- total revenue for full year, we had factored a certain license number for the year, and we do hope to hit that license number. So overall, for the full year, our estimates are not going to change. So I don't split my guidance product-wise. So I will not be able to answer the second part of your question.

[Unknown Analyst]

[Foreign Language]

[Yuki Nishio, executive]

[Interpreted] So second question from Tsuruo-san. Over -- so within a little less than 2 years, there has been a price hike once again. So if you could share with me your pricing strategy or price increase strategy going forward. Can we expect that perhaps every other year, there will be a price hike?

[S.Krishna Kumar, executive]

It is -- we are a global corporation and a lot of our pricing policies are globally standard as most of the price increases that we saw in Japan in the last 6 to 8 quarters has been driven by the fact that the Japanese yen has declined significantly. So if the yen continues to fall, which I don't think it will. But if it continues to fall, yes, we may see some more price increases. But in general, we don't knee-jerk -- we don't do any knee-jerk price increases. There is always a scientific reason behind it. In fact, for -- if you go like 2 years before and then you look at the period before that, we never changed our price for several years. So this basically depends on obviously, demand and supply and the margins that we make as a company.

[Yuki Nishio, executive]

[Interpreted] Tsuruo-san's third question. The adoption of Alloy of NTT DATA and Fujitsu, how much contribution will it make on Oracle's revenue? Will you be able to share with me the projections going forward?

[S.Krishna Kumar, executive]

Firstly, let me briefly explain what Alloy means to us and what it means, let's say, to the Japanese market. Alloy is a very unique offering that we have that Oracle has, which no other hyperscaler can provide. Basically, using Alloy, our partners can actually incorporate it or integrate it within their data centers and offer Oracle's cloud service in conjunction with their own cloud services seamlessly. So for us, it's a very, very exciting offering in Japan. And given by the interest that a lot of these system integrators have shown, it definitely will drive revenue for us in the future. We are still -- so we have booked these Alloys.

There are hopefully, some more come in the pipeline in the future. So it's definitely a choice go-to-market for Oracle in the Japanese market. So we will continue to strengthen our Alloy presence. It will drive significant value for Oracle. It will also obviously drive significant value for our system integrators. And yes, it will drive significant revenue for Oracle.

[Unknown Analyst]

[Foreign Language]

[Yuki Nishio, executive]

[Interpreted] Next question is from SMBC, Mr. Kikuchi. This is also about Alloy. NTT DATA has adopted Alloy, and I believe that is the biggest scale in the past. And NTT DATA has announced that it will start to offer their service from the end of calendar year 2025. So is it correct to understand that the number is not included in your first half? And when will it -- the contribution of this, will it be made starting from the second half of next fiscal year?

[S.Krishna Kumar, executive]

I don't basically calculate my forecast based on somebody else's announcements. I have a certain pipeline from various cloud deals and various transactions that we enter into a wide variety of customers. NTT DATA happens to be one of our customers. So if they are saying it is end of '25, then probably it will not hit me before that. So I don't know -- I mean, I think it's very logical, right?

I mean -- I have -- so for the current year, I'll again go back. I have forecasted 5% to 9%. That's a mix of all of my products and services. I don't really want to get into specifics on what I included, what I didn't include. But that should give you a flavor of where we are as a company and the fact that alloy will contribute significantly to our growth in the future. That's where I would leave this.

[Unknown Analyst]

[Foreign Language]

[Yuki Nishio, executive]

[Interpreted] So next question is from Tanaka-san of Morgan Stanley, MUFG. The first question is, in the second quarter -- 3 months in the second quarter, gross profit margin has dropped. Can you give me the background and the reasons why there was a drop?

[Unknown Analyst]

[Foreign Language]

[S.Krishna Kumar, executive]

Okay. Sorry. So if you look at Q2 stand-alone, because the sales mix is different, it impacts the margins. But if you look at the first half, we are at the same level as previous year, so there's no drop in margin. I always look at my numbers 4 quarters rolling because that takes care of all the seasonal revenue issues that we have, and you get a better sense of where we are. So I continue to maintain that we will maintain similar levels of margin as we go into the future.

[Unknown Analyst]

[Foreign Language]

[Yuki Nishio, executive]

[Interpreted] Second question from Tanaka-san. In the past 3 months, the number of headcounts increased by 9. Will this increase continue?

[S.Krishna Kumar, executive]

We continue to look at our headcount in terms of deployment. As I've said in the past, we would continue to churn headcount from nonstrategic areas to strategic areas. And as we grow our revenues, as we expand our market share, we'll definitely need more people on the ground. So yes, we would continue to hire as and when required. And we are -- as you know, we are a very margin-conscious company. We just don't hire just for the sake of hiring. We hire when we are required to hire.

[Unknown Analyst]

[Foreign Language]

[Yuki Nishio, executive]

[Foreign Language]

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]