• Oracle’s Q2 Guidance
    Posted by on September 17th, 2015 at 10:22 am

    From the conference call:

    I am going to give you constant currency guidance, but if exchange rates remain the same as they are right now, we expect to see a currency headwind of about 6% on revenue and $0.05 on earnings per share. But again, it could be significantly worse. Maybe if we are lucky, it could be a little bit better. All of my guidance today is on a non-GAAP basis and in constant currency. So, here it goes.

    SaaS and PaaS revenue is expected to grow 36% to 40%. Cloud IaaS revenue is expected to grow 5% to 9%. Total cloud and on-premise software is expected to grow from 0% to 2%. Total revenue is expected to range from a negative 2% to a positive 1%. Non-GAAP EPS in constant currency is expected to be somewhere between $0.63 and $0.66. Now, this assumes a non-GAAP tax rate of 25.5%. Of course, if this quarter is any example, it may end up being different. Looking further out, we expect to see a material acceleration in SaaS and PaaS revenue. As a result, I am providing full fiscal year guidance for some key items. As before, my guidance on the full year is in constant currency.

    SaaS and PaaS revenue is expected to grow around 50%. On-premise software is expected to grow approximately 1%. Total cloud and on-premise software is expected to grow between 3% and 4%. Finally, SaaS and PaaS gross margins are expected to materially improve in the second half and exit the year at around 60%.

  • Morning News: September 17, 2015
    Posted by on September 17th, 2015 at 6:29 am

    China, U.S. Reach Agreement on High-Speed Rail Before Xi Visit

    Swiss Central Bank Leaves Interest Rates Unchanged

    BOJ Governor Kuroda Comments at News Conference

    Silent on Priorities, Yellen Makes Fed Choice a Cliffhanger

    Health Care Gains, But Income Remains Stagnant, the White House Reports

    U.S. Home-Builder Confidence Climbs in September, Industry Group Says

    It’s Time To Get Serious About Reducing Food Waste, Feds Say

    Altice to Buy Cablevision

    GM Said to Settle Criminal Case Over Ignition Switches

    Expedia-Orbitz Deal Gains Antitrust Clearance

    AB InBev, SABMiller Deal Expected to Face Global Antitrust Grilling

    Oracle’s Revenue Misses Estimates as License Sales Decline

    U.S. Judge Certifies Class Action Over Target Corp Data Breach

    Roger Nusbaum: Learning From Target Date Funds Without Actually Using Them

    Cullen Roche: Three Things I Think I Think – Stupid Markets Edition

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  • Oracle Earns 53 Cents per Share
    Posted by on September 16th, 2015 at 4:39 pm

    After the closing bell, Oracle (ORCL) reported fiscal Q1 earnings of 53 cents per share which was one penny ahead of expectations. Once again, the strong dollar was a big factor. Total revenues fell 2% to $8.4 billion but rose by 7% in constant currency. Oracle earned 62 cents per share in last year’s Q1.

    “Our traditional on-premise software business plus our new cloud business grew at a combined rate of 6% in constant currency,” said Oracle CEO, Safra Catz. “This growth is being driven by new SaaS and PaaS annual recurring cloud subscription contracts which almost tripled in the quarter. As our cloud business scales-up, we plan to double our SaaS and PaaS cloud margins over the next two years — starting from 40% this just completed Q1, to approximately 60% this coming Q4, and then on up to 80% two years from now. Rapidly growing cloud revenue combined with a doubling of cloud margins will have a huge impact on EPS growth going forward.”

    “In Q1 SaaS and PaaS revenue was up 38% in constant currency — in Q4 that revenue growth rate will be over 60%,” said Oracle CEO, Mark Hurd. “That cloud revenue growth rate is being driven by a year-over-year bookings growth rate of over 150% in Q1. Our increasing revenue growth rate is in sharp contrast to our primary cloud competitor’s revenue growth rates which are on their way down.”

    “We are still on target to book between $1.5 and $2.0 billion of new SaaS and PaaS business this fiscal year,” said Oracle Executive Chairman and CTO Larry Ellison. “That means Oracle would sell between 50% more and double the amount of new cloud business than salesforce.com plans to sell in their current fiscal year. Oracle is the world’s second largest SaaS and PaaS company, but we are rapidly closing in on number one.”

  • Microsoft Boosts Dividend by 16%
    Posted by on September 16th, 2015 at 12:44 pm

    I recently said I expected Microsoft (MSFT) to raise their quarterly dividend. It was at 31 cents per share, and I was expecting an increase to 34 cents per share. The board outdid me! They raised it to 36 cents per share. That’s a 16% increase. Microsoft now pays out $1.44 per share per year. Going by yesterday’s close, MSFT yields 3.3%.

    If you bought Microsoft on July 25, 1991 at $66 per share, adjusting for stock splits totaling 48-for-1, then your cost basis is $1.375 per share. That means your dividend is now over 100% based on your purchase price.

  • Weak CPI Report for August
    Posted by on September 16th, 2015 at 10:20 am

    The inflation report for August came out this morning. Headline inflation fell 0.071% last month. So we’re talking about raising interest rates while we’re experiencing deflation. Year-over-year inflation rose from 0.17% through July to 0.20% through August.

    It’s not just commodity prices. Core inflation rose by just 0.074%. That’s the lowest rate all year. Core inflation is now running at just over 2% this year.

    Here’s the year-over-year inflation rate (black) along with the Fed funds rate (blue). You can see that the Fed has kept real rates negative (black higher than blue), but that’s come undone recently. In other words, by doing nothing, the Fed has effectively tightened rates.

  • High Quality Wins
    Posted by on September 16th, 2015 at 9:40 am

    From Business Insider:

    Investing in the stock market may be easier than we think, according to Chris Montagu and the equities research team at Citi.

    They have identified that the strategy of investing in so-called high-quality stocks has returned 5% to 7% a year on average since 1995.

    All you have to do is pick out big, boring stocks with decent profit margins, low debt, and reliable income flows.

    Then sit back and wait.

  • The Dividend Bull Market
    Posted by on September 16th, 2015 at 9:32 am

    Here’s a look at the S&P 500 (blue line, left scale) along with its trailing dividends (black line, right scale). The two lines are scaled at a ratio of 50-to-1. That means that whenever the lines cross, the market’s dividend yield is exactly 2%.

    What’s striking is that dividends have risen right along with prices. Or perhaps, vice versa. I would hardly say that the market’s dividend yield is the end-all in valuations, but the persistence of 2% is noteworthy.

    Only recently has it broken down. Through June, the S&P 500 had paid out $41.74 in dividends for the previous four quarters. (That’s the index-adjusted number.) Companies are still churning out the dividend increases. Viewed from this perspective, the market is hardly a bubble. What I like about dividend analysis is how stable dividends are.

    I estimate that the trailing four-quarter dividend number will be $42.65 at the end of this month. To be yielding 2%, the S&P 500 would then need to be at 2,132.50 which would be a new closing high.

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  • 18 Years Ago Today, Steve Jobs Returns
    Posted by on September 16th, 2015 at 8:43 am

    Eighteen years ago today, Steve Jobs returned to Apple (AAPL), the company he founded. The stock closed that day, September 16, 1997, at $21.94 per share. Adjusted for two 2-for-1 and one 7-for-1 splits, Apple was trading at 78.3 cents per share in today’s terms. The high from this past spring was $134.54. The company is currently worth two-thirds of a trillion dollars.

    sc09162015

    Interestingly, the stock was not an immediate hit when Jobs came back. Within a few days, it dropped down to $12.75 per share, or about 45.5 cents adjusted for splits. That was barely above Apple’s IPO price from 17 years before.

    (Apple IPO’d at $22 per share; adjusted for splits of 56-for-1, that comes to 39.3 cents in today’s dollars. The IPO was the largest offering since Ford in 1956.)

    At its low point in 2003, Apple was lower than where it had been in 1983. Think about that! Twenty years of no gain, and this was well after Steve Jobs had returned.

    Apple’s single-worst day came on September 29, 2000 when the stock plunged 51.9%. The catalyst was that Apple said they were going to miss earnings. That was also Apple’s highest volume day. It traded over 1.8 billion shares that day.

    Apple has suffered other big drops. On the day of the 1987 crash, Apple fell 24.4%. The stock has fallen more than 10% in a single day 26 times, which is nearly once per year.

    Apple’s single-best day came on August 6, 1997 when it soared 33.2%. That was the day Steve Jobs, who was then an advisor to Apple, announced at a MacWorld trade show that Microsoft was investing $150 million in Apple preferred stock. That moved saved Apple. At the time, people in the crowd booed. Here’s the video:

    Jobs had left Apple 30 years ago this Friday, September 18, 1985. At the time, the stock was at $16.25 per share, or 29 cents adjusted for splits. So in the 12 years of his absence, Apple had gone from 29 cents to 78 cents. That was a gain of 170%, which works out to 8.6% annually.

    sc09162015a

    In the last 18 years, the stock is up nearly 150-fold, or 32% annually.

  • Morning News: September 16, 2015
    Posted by on September 16th, 2015 at 7:07 am

    Eurozone Inflation Slows Unexpectedly in August

    Standard & Poor’s Downgrades Japan’s Sovereign Credit Rating From AA- to A+

    Emerging Stocks Rally With Currencies Before Fed as China Jumps

    OECD Trims Growth Outlook But Urges Fed Action This Week

    Finance Replaces OPEC as Oil Supply Arbiter

    Volatility Seen Lingering No Matter What the Fed Does

    U.S. Retail Sales Rise 0.2%, as Consumers Show More Confidence

    Anheuser-Busch InBev Approaches SABMiller on Possible Takeover

    HP to Cut Up to 30,000 More Jobs in Enterprise Business

    Motorola Solutions Moving Headquarters, 800 Jobs to Chicago

    Comcast Creates New Enterprise Services Unit to Target Big Businesses

    Microsoft Is Undervalued Ahead Of Dividend Raise

    FedEx Trims 2016 Forecast as First-Quarter Earnings Fall Short

    Jeff Carter: Consumer Jumps Into B2B: B2B Jumps Into Consumer

    Howard Lindzon: Twitter a Buy?

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  • The S&P 500 and its Earnings
    Posted by on September 15th, 2015 at 1:25 pm

    Here’s an updated look at the S&P 500 and its earnings line. The index is the black line and it follows the left scale. The earnings line is yellow and it follows the right. The future part of the yellow line is based on Wall Street’s consensus.

    image003

    The two lines are scaled at a ratio of 16-to-1 so whenever the lines cross, the market’s P/E Ratio is exactly 16. I don’t mean to imply that’s fair value. The graph simply works best at that ratio.