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Oracle to Sustain Same Capital Expenditure Trend in Fiscal 2019

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Sep. 13 2018, Updated 1:10 p.m. ET

Capital expenditure guidance and trends

Oracle (ORCL) expects its fiscal 2019 capex (capital expenditure) to be equivalent to its fiscal 2018 capex of ~$1.7 billion. The company has maintained stable capital expenditure growth in the last five fiscal years, with average capex of ~$1.4 billion. The graph below shows Oracle’s capital expenditure trend for the last five fiscal years.

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Peer comparisons

Oracle exited fiscal 2018 with a capex-to-sales ratio of 4.3%, down from 5.3% in fiscal 2017. In the last five years, the company maintained an annual run rate of 3.6%.

During the same period, Oracle’s peers Microsoft (MSFT), IBM (IBM), and Accenture (ACN) reported average capex-to-sales ratios of 33.0%, 4.3%, and 1.3%, respectively.

Factors driving Oracle’s capex

Oracle (ORCL) has been expanding its market traction, which has increased its capital expenditure growth. The company’s international business has shown double-digit growth in the last few years. Oracle has posted single-digit growth in the US market.

Higher investment in cloud infrastructure and the expansion of its product portfolio may accelerate Oracle’s capex going forward. The company’s recent products include Oracle Autonomous Transaction Processing, Oracle TimesTen Scaleout, and Oracle Banking Virtual Account Management.

Oracle has maintained average free cash flow of ~$13.2 billion in the last five fiscal years. This strong free cash flow is expected to help the company support its capital expenditure targets going forward. However, rising debt and its objective to maintain higher shareholder returns may offset the company’s capex goals.

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