Alloy's Integration With NTT DATA And Fujitsu Will Drive Revenue Growth And Strengthen Market Position

Key Takeaways

• Stabilization after Q2's decline and strategic headcount growth signal Oracle Japan's focus on revenue and market share expansion.
  
• The expansion of Alloy with partners and strategic pricing indicate a strong competitive stance and potential revenue growth in Japan.
  
• Frequent price hikes, delayed revenues from key partnerships, and increased headcount pose risks to profitability and revenue growth amid currency fluctuations and market dependencies.

Catalysts

Engages in the development and sale of software and hardware products and solutions in Japan.

• The completion of the reactionary decline in Q2 due to a price increase suggests stabilization and potential revenue growth in Q3 and Q4 as Oracle Corporation Japan anticipates reaching their license revenue targets for the year, positively impacting overall revenue.
  
• The introduction and expansion of Alloy, a unique offering providing seamless integration for partners like NTT DATA and Fujitsu, is expected to drive significant future revenue in the Japanese market, enhancing Oracle's competitive position and market share.
  
• Oracle Corporation Japan anticipates strategic headcount growth aligned with revenue expansion and market share increase, suggesting a focus on deploying resources efficiently to maintain or improve net margins.
  
• The potential for further price increases in response to currency fluctuations and market demand indicates a strategic approach to pricing that could support revenue growth and stabilize net margins if the yen changes unpredictably.
  
• Despite a temporary drop in Q2 gross profit margins due to sales mix, maintaining overall margins on a rolling four-quarter basis indicates disciplined financial management supporting stable earnings.

Oracle Corporation Japan Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Oracle Corporation Japan's revenue will grow by 7.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 23.1% today to 24.2% in 3 years time.
• Analysts expect earnings to reach ¥76.1 billion (and earnings per share of ¥604.28) by about December 2027, up from ¥58.3 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting ¥86.1 billion in earnings, and the most bearish expecting ¥63.1 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 26.1x on those 2027 earnings, down from 32.8x today. This future PE is lower than the current PE for the JP Software industry at 41.2x.
• Analysts expect the number of shares outstanding to decline by 0.61% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.54%, as per the Simply Wall St company report.

Oracle Corporation Japan Future Earnings Per Share Growth

Risks

• Frequent price hikes related to currency fluctuations, such as the decline of the Japanese yen, could impact demand and customer retention, potentially affecting future revenue and net margins.
  
• Dependence on specific offerings like Alloy, which have not yet fully impacted financials, may present a risk if market adoption is slower than expected, impacting future revenue projections.
  
• The delayed revenue contribution from large partnerships, like NTT DATA with Alloy, which won't affect financials until late 2025, could lead to overestimation of near-term revenue growth.
  
• A drop in gross profit margins due to changes in sales mix indicates potential volatility in profitability, which may impact earnings if this variability continues.
  
• An increase in headcount, while aimed at strategic growth, could lead to higher operational costs if not matched by proportional revenue growth, potentially affecting net margins and profitability.

Valuation

• The analysts have a consensus price target of ¥13533.33 for Oracle Corporation Japan based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ¥16000.0, and the most bearish reporting a price target of just ¥9800.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be ¥314.3 billion, earnings will come to ¥76.1 billion, and it would be trading on a PE ratio of 26.1x, assuming you use a discount rate of 5.5%.
  
• Given the current share price of ¥14920.0, the analyst's price target of ¥13533.33 is 10.2% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.