There is blood on the street again as investors worry about the Fed’s plan to reduce its stimulus. The market experienced its worst day of 2013 so far as the Dow Jones declined by 2.3%, or nearly 354 points. The S&P 500 dropped by 2.5% to 1,558.19. Along with the general market decline, Oracle Corporation (NASDAQ:ORCL)‘s share price took the pain by decreasing nearly 9% in after hours trading, dropping to only $30.30 per share. Should we consider the recent share price drop a good investment opportunity? Let’s find out.
Oracle missed sales estimates, raised its dividends
The drop of Oracle Corporation (NASDAQ:ORCL)’s share price might be due to the weak sales reported in its fourth quarter earnings results. While analysts expected that Oracle could generate $11.12 billion in sales, its revenue fell short of expectations at $10.95 billion. Sales stayed flat compared to the fourth quarter last year. Oracle experienced decent growth of 4% in its software revenue, but at the same time its hardware revenue declined by as much as 9%. Despite the flat sales, Oracle managed to grow its net income by 10%, from $3.45 billion in the fourth quarter of last year to more than $3.8 billion, or $0.80 per share.
What made investors interested was the announcement that Oracle Corporation (NASDAQ:ORCL) was doubling its quarterly cash dividend from the current dividend of $0.06 per share to $0.12 per share. The increased dividend would be paid on August 2 to shareholders of record on July 12. Moreover, the company also authorized an additional $12 billion for share repurchases under its existing share buyback program. Safra Catz, the company’s President and CFO, commented that the increase in dividend payment was due to a consistent higher margin, higher cash flow and cash balance.
Cloud expansion via acquisitions
Oracle Corporation (NASDAQ:ORCL), along with its peers such as International Business Machines Corp. (NYSE:IBM) and salesforce.com, inc. (NYSE:CRM), has been expanding its footprint in cloud services. At the end of 2012, the company bought Eloqua Inc (NASDAQ:ELOQ) for around $871 million to enhance its Customer Experience Cloud offering. Eloqua provides web-based on-demand revenue performance management for better revenue predictability via marketing and sales initiatives management.
IBM also made an aggressive move when spending around $2 billion to acquire a cloud computing company, SoftLayer. SoftLayer was the biggest privately-held provider of cloud computing infrastructure with 13 data centers and around 21,000 customers. The acquisition could enhance International Business Machines Corp. (NYSE:IBM)’s capability to integrate both public and private cloud offerings for its clients. Erich Clementi, the Senior VP of IBM Global Technology Services said:
With SoftLayer, IBM will accelerate the build-out of our public cloud infrastructure to give clients the broadest choice of cloud offerings to drive business innovation.
Looking forward, IBM expects to generate as much as $7 billion in annual cloud revenue by the end of 2015.