Software giant Oracle (Nasdaq:ORCL) continues to show that size is not an insurmountable obstacle to growth. Although the enterprise IT world continues to evolve (with concepts like Big Data, cloud and so on getting ample airtime), Oracle continues to show that it is willing to evolve with it. While this company is quite large and very closely followed, I still believe shareholders can look forward to meaningful gains to come.

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A Good Result in a Seasonally Strong Quarter
Oracle typically reports solid results in its fiscal second quarter, and results for this year was no exception.

Revenue rose 3% from last year and about 11% from the prior quarter, good enough to modestly beat the average sell-side guess. License revenue was the star, climbing 17% from last year as reported and about 11 to 12% on an organic constant currency basis. Within that, applications performance was quite strong, as e-business and Siebel pushed revenue up about 30%.

Software maintenance and services were more mediocre though, growing 7% and declining 5%, respectively. Hardware was the big disappointment, though, as sales dropped 23%. While Oracle continues to talk up its hardware business (Larry Ellison called the Sun deal the best deal Oracle has ever done) and guide for better performance, the reality is that this is far and away the most volatile part of the model.

Margin performance was quite good this quarter. Gross margin improved about two points both sequentially and year on year, and operating income rose 12%, leading to a nearly three-point improvement in GAAP operating margin.

SEE: How To Decode A Company's Earnings Reports

Big Data Still the Big Deal
While I admit that "Big Data" is becoming almost as annoying of an IT theme as clouding computing became, the reality is that it's a huge market worth tens of billions of dollars. What's more, everyone from Cisco (Nasdaq:CSCO) to IBM (NYSE:IBM) to Microsoft (Nasdaq:MSFT) to Salesforce.com (NYSE:CRM) is trying to position themselves for as large a piece as possible.

To that end, I think Oracle may still be under-appreciated as a Big Data player. Exadata should help drive better hardware performance, and I believe Oracle's version of "database as a service" should hold up well against rival offerings from Microsoft and Salesforce.com.

The bigger question in my mind is the extent to which other big tech players decide to "cross the streams" and move into new areas of business that may conflict with Oracle. Data storage, for instance, is increasingly about both hardware and software and I wonder if large storage hardware vendors will also move into areas like database as a service and NewSQL.

SEE: A Primer On Investing In The Tech Industry

Deals Probably a When, Not If
Although Ellison said on Oracle's conference call that returning cash to shareholders was preferable to doing big deals, I still expect Oracle to be an active deal-maker. The company was busy in 2012, but Oracle has pretty much always been an active acquirer. Although I think it's unlikely that the company would do a deal that would seriously deplete its cash balance (something on the order of $10 billion, for instance), I don't believe for a minute that Oracle is ever just going to stand pat.

The Bottom Line
Investors considering Oracle shares need to remember that the company elected to accelerate multiple quarters' worth of dividends into 2012. Given Oracle's relatively low yield (about 0.7%), that's not a big deal, but it's worth remembering.

Looking at the stock's value, I'm still impressed that it takes only modest growth assumptions to drive a worthwhile fair value. If Oracle can continue to grow revenue at a 3 to 5% average rate, even a little bit of free cash flow margin erosion still drives a target price above $40. Although valuing tech stocks on cash flow is tricky (investors tend to be much more concerned with revenue and earnings growth rates), I believe Oracle is still well-priced as a core long-term tech holding.

At the time of writing, Stephen D. Simpson did not own any shares in any company mentioned in this article.

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