OpenText (OTEX) Posts Record Profits While Core Revenue Stalls

On August 6, OpenText Corporation (NASDAQ:OTEX) disclosed its fourth quarter and full fiscal 2026 results. Quarterly net income surged 439.9% year-over-year, reaching $156 million, while diluted EPS increased to $0.64, a 481.8% gain. For the fiscal year, net income rose 47.5% to $643 million, and gross margin expanded to 75.0%. Cloud revenue, the company's primary growth driver, rose 6.0% year-over-year to $503 million in the quarter and climbed 5.5% to nearly $1.96 billion for the year.

Enterprise cloud bookings increased 24.1% to $295 million in the quarter and 22.5% to $947 million for the full year. Management distributed a record $677 million in shareholder returns, consisting of $268 million in dividends and $409 million in buybacks. Dividend payments were increased by 5%, and the authorization for share repurchases was renewed, allowing for up to 23,846,439 shares to be bought back within the next year.

OpenText also sold its non-core Vertica division for $150 million to Rocket Software and committed €105 million for expansion in Cork and Galway, focusing on agentic AI and sovereign cloud in Europe. However, customer support revenue, the company's largest and most stable line, declined 4.6% in the quarter and 2.0% for the year.

Revenue from professional services and other segments fell 6.5% in the quarter and 8.6% for the year, indicating the legacy and services side of the business is contracting even as cloud revenue expands. License revenue grew 24.4% in the quarter and 8.4% for the year, but this often stems from large individual contracts rather than a recurring subscription model.

Free cash flow decreased 1.6% in the quarter to $122 million, despite a 17.5% increase in operating cash flow. OpenText's CEO, Ayman Antoun, stated that fiscal 2027 would serve as the company's foundation year, emphasizing steady execution rather than a growth breakthrough. Hedge fund ownership of OpenText rose from 14 to 18 funds within the quarter, indicating accumulating institutional interest.

The stock trades at a forward P/E of 6.31 as of September 3, implying minimal earnings growth expectations. Despite recording record annual profits and cash returns, OpenText's flat annual recurring revenue and declining support and services segments suggest that the core subscription base is not expanding rapidly. While OpenText's financial performance is impressive, the company may not offer the same level of upside as other AI stocks, which could present greater potential and less downside risk.