Guangda Securities released a research report stating that after the market closed on June 11th (EDT), Oracle (甲骨文/ORCL.US) released its FY24Q4 (24M3-24M5) financial results. Although FY24Q4 revenue was slightly lower than expected, Oracle's profit margin and RPO remain at a high level, demonstrating the continued strong demand for AI cloud services. Oracle strengthened its partnerships with companies such as OpenAI, Nvidia, and Google. The modularity and scalability of OCI support AI training and inference, and the long-term growth potential of the IaaS business is optimistic.

The main points of view of Everbright Securities are as follows:

On June 11th (EDT), Oracle released its FY24Q4 (24M3-24M5) financial results, and its stock price rose 13.3% the next day. Although revenue was lower than expected, strong demand for cloud computing and AI data centers was demonstrated. The company strategically withdrew from the advertising business and no longer announces Cerner's performance, further focusing on the cloud computing and AI fields, and optimizing resource allocation.

Although revenue was slightly lower than expected, OCI's cloud computing services facilitated a significant increase in RPO.

1) Oracle's total revenue for FY24Q4 reached $14.29 billion, a year-on-year increase of 3.3%, a decrease of 3.9 percentage points from the previous quarter. However, IaaS and SaaS revenue reached $5.3 billion, a year-on-year increase of 20%. Among them, IaaS revenue rose 42% year-on-year to $2 billion, exceeding expectations by 1.67%.

2) Remaining performance obligations (RPO) increased to $98 billion, a year-on-year increase of 44%, a quarterly increase of 22.5%, and exceeded the consistent expectation of 32.5%. 39% of RPO will be recognized as revenue within the next year.

3) The company predicts that FY25Q1 total revenue will increase by 5%-7%, and Non-GAAP EPS will be $1.31-1.35. Strong demand for cloud services and AI is expected to drive revenue growth in FY25. The growth rate of subscription channels will double compared to FY24.

4) Buy back 1.25 million shares and expect to distribute a dividend of 0.4 US dollars per share.

Although GAAP net income for FY24Q4 is lower than expected, operating profit margin continues to rise. Oracle's GAAP net income for FY24Q4 was $3.14 billion, a year-on-year decrease of 5.3%, lower than the consistent expectation of 6.36%. Oracle's GAAP operating profit for FY24Q4 was $4.69 billion, a year-on-year increase of 13%. The operating margin from FY24Q1-FY24Q4 continued to rise from 26.5% to 32.8%, mainly due to the optimization of sales expenses and improvements in operating efficiency.

Focus on AI, strong demand for cloud computing services and AI data centers. Cloud service and support revenue for FY24Q4 was $10.23 billion, a year-on-year increase of 9.2%. Signed AI-related contracts worth $12.5 billion, accounting for 12.8% of FY24Q4 RPO. Cloud database service revenue increased by 26% year-on-year to $2 billion.

1) Oracle Gen 2 Cloud has certain technical barriers: thanks to RDMA, the training speed and cost of large language models are lower.

2) Modularization and automation of OCI: OCI's modular design allows it to be deployed in private clouds, providing the highest level of privacy protection and scalability. OCI has highly automated operating systems and databases, ensuring cloud security.

3) Multi-cloud interconnection: Establish cooperation with Microsoft and Google. OCI is built on Azure and Google Cloud data centers to accelerate data transfer speeds and increase multi-cloud interconnection capabilities.

Continually investing in data center and cloud server construction. More cloud capacity is being built to enhance cloud region scale and flexibility. In addition to the existing 76 customer-facing cloud regions, 19 are under construction, another 15 regions are planned in addition to the 13 dedicated regions online. Two Alloy regions have come online, and another 11 are under construction. In addition, a 200 MW data center is being built to meet AI training needs.

Deepening cooperation with major companies such as OpenAI, Nvidia, Microsoft, and Google.

1) Cooperate with OpenAI and Microsoft to provide additional capacity for AI inference, build and allocate a data center of about 100 MW.

2) Expand cooperation with Nvidia. NVIDIA Grace Blackwell has joined DGX Cloud on OCI. 3) Partner with cloud service providers. Twelve and eleven databases are currently running on Google Cloud and Microsoft Azure, respectively, and will continue to increase. Business ARR expected to grow about 10 times with Azure in FY25Q1.

4) Cooperate with Palantir to provide secure cloud and AI solutions, aimed at supporting businesses and governments around the world.

Although FY24Q4 revenue was slightly lower than expected, Oracle's profit margin and RPO remained at a high level, demonstrating the continued strong demand for AI cloud services. Oracle strengthened its partnerships with companies such as OpenAI, Nvidia, and Google. The modularity and scalability of OCI support AI training and inference, and the long-term growth potential of the IaaS business is optimistic. It is recommended to continue to pay attention to the company.

Risk Warning: Risks of AI technology research and product iteration falling short of expectations; intensifying competition in the AI industry; risks of commercialization progress falling short of expectations; domestic and foreign policy risks.