On August 6, OpenText Corporation (NASDAQ:OTEX) reported its fourth quarter and full fiscal 2026 results, and the numbers pulled in two very different directions at once. Quarterly net income more than quintupled from a year earlier, cloud revenue extended a streak stretching back more than five years, and yet total annual recurring revenue barely budged. That contrast, a profit explosion sitting next to a nearly flat core subscription base, is what investors now have to weigh heading into fiscal 2027.
A Profit Engine Waking Up
GAAP net income attributable to OpenText jumped to $156 million in the fourth quarter, up 439.9% from a year earlier, while diluted EPS climbed to $0.64, a gain of 481.8%. That wasn’t a one-quarter fluke. For the full fiscal year, net income rose 47.5% to $643 million, a 12.3% margin, and gross margin expanded as well, with GAAP-based gross margin reaching 75.0% in the quarter versus 72.3% a year earlier. Adjusted EBITDA margin held steady at 37.6% for the quarter and 36.3% for the full year.
Cloud remained the engine underneath that. Cloud revenue rose 6.0% year over year to $503 million in the quarter, the 22nd consecutive quarter of organic cloud growth, and enterprise cloud bookings jumped 24.1% to $295 million. For the full year, cloud revenue grew 5.5% to nearly $1.96 billion, and enterprise cloud bookings climbed 22.5% to $947 million.
Management also leaned into capital returns and portfolio discipline. OpenText returned a record $677 million to shareholders in fiscal 2026, split between $268 million in dividends and $409 million in buybacks, then raised its dividend 5% and renewed authorization to repurchase up to 23,846,439 shares over the next year. The company also sold non-core Vertica for $150 million to Rocket Software and committed €105 million to a Cork and Galway expansion, adding 400 jobs focused on agentic AI and sovereign cloud in Europe.
Where The Growth Story Cracks
Customer support revenue, OpenText’s largest and steadiest line, fell 4.6% to $553.8 million in the quarter and slipped 2.0% for the full year. That drag pulled total annual recurring revenue growth down to just 0.2% in the quarter and 1.3% for the year, a far cry from the double-digit cloud gains. Professional services and other revenue fell too, down 6.5% in the quarter and 8.6% for the year, showing the legacy and services side of the business is shrinking even as cloud expands.
License revenue jumped 24.4% in the quarter and 8.4% for the year, but license sales are typically tied to individual large contracts rather than a recurring subscription base, so one strong quarter doesn’t guarantee the next looks the same. Free cash flow also slipped 1.6% in the quarter to $122 million even as operating cash flow rose 17.5%, meaning cash conversion didn’t keep pace with the headline profit jump. CEO Ayman Antoun described fiscal 2027 as “our foundation year,” language that points to steady execution rather than a growth breakout.
What The Smart Money Sees
Hedge fund ownership of OpenText rose from 14 to 18 funds quarter over quarter, pointing to accumulating institutional interest. Short interest sits at 5.99% of float, high enough to reflect a real bear camp rather than token skepticism. The stock trades at a forward P/E of just 6.31 as of September 3, a multiple that prices in almost no earnings growth ahead. That combination is unusual for a company that just posted record annual profit and cash returns.
The Tension Nobody Has Settled
OpenText closed fiscal 2026 with a profit and cash-return profile most legacy software vendors would envy, led by a 47.5% jump in annual net income. But flat annual recurring revenue and shrinking support and services lines show the core subscription base isn’t growing much on its own. Cloud bookings growth and the European AI investment give bulls a path toward faster ARR growth down the road.
READ NEXT: 10 Best Future Stocks to Buy Under $10 and 12 Best Performing Semiconductor Stocks to Invest In.
Follow Insider Monkey on Google News.
Hedge Fund Resource Center