ORCL – 3 Things to Watch for in Oracle Earnings

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As information technology giant Oracle (ORCL) gears up to disclose quarterly earnings after market close on Thursday, investors are looking for clues not only about where the stock has been, but where it’s going in a rapidly changing hardware and cloud services market. Oracle’s weaker-than-expected earnings in the prior quarter triggered a 5% dip on the news — prompting the question of whether you should sell ORCL stock ahead of time or buy on a dip.

orcl oracle stockFor its fiscal first quarter, Wall Street expects Oracle to post earnings per share of 64 cents on a top line of $8.77 billion — comparatively subdued expectations that ORCL has a decent chance to beat.

Still, some business challenges — most notably in ORCL’s hardware business — increase the likelihood of mixed results from ORCL’s fiscal Q1.

Oracle is coming off a tough earnings miss last quarter, in which the company’s profit fell to $3.6 billion from $3.8 billion a year ago, and its 92 cents in EPS missed the 95 cents that analysts expected. ORCL also missed on the top line, delivering $11.3 billion — Wall Street had been looking for $11.48 billion in total revenue.

If you’re evaluating ORCL stock, you’ll want to keep that previous quarter’s disappointment in the back of your head, and keep on the lookout for these three things when Oracle earnings come out Thursday:

Send in the Clouds

Oracle’s traditional server and software business is declining, in large part because of the ascendancy of cloud-based services. So it comes as no surprise that ORCL is staking a big claim in the cloud on all layers — infrastructure, platform, software and storage. In Q4, Oracle’s cloud sales grew by 22%, though cloud revenue still represented only about 5% of sales for the quarter.

Expect ORCL stock to be somewhat sensitive to stronger growth in cloud sales for the most recent quarter, but remember that not all cloud sales are created equal.

The fastest-growing segment is Infrastructure as a Service (IaaS), a $4 billion market that accounts for less than 5% of Oracle’s revenue, and which ORCL grew by only 13% last quarter. That’s particularly significant since Google’s (GOOG) nine-month-old IaaS service is on track to be one of the Top 5 IaaS vendors, according to a new report from IHS.

Shopping Spree

ORCL has a seemingly insatiable appetite for acquisitions — Oracle has ingested six companies in 2014 alone, including Front Porch Digital (announced this week) and hospitality-focused Micros Systems (announced last quarter). At $5.3 billion, Micros is Oracle’s largest deal since it acquired Sun Microsystems four years ago.

Both deals have an impact on Oracle’s cloud dreams. Front Porch is a content storage management developer, and its solutions include the Lynx cloud offering which can integrate and secure digital content distribution. Micros runs software designed for restaurants and other hospitality providers.

Hardware Headaches

Oracle has gone to great lengths to deliver a new generation of high-end servers like its Sun Server X4-4, but that will not stem the decline in datacenter hardware. Why? The datacenter is in transition now and between virtualized server architecture and cloud infrastructure, this is a business that must change to win.

Server unit shipments gained 1.2% in the second quarter of this year, according to IDC. ORCL is taking steps to replace declines in hardware revenue, but it will be a challenge nevertheless.

Bottom Line

Don’t take an Oracle earnings miss as a death blow, unless it is accompanied with stagnant or declining cloud sales. Conversely, don’t see an earnings beat as proof that it’s time to go all-in on ORCL stock because there will be fits and starts at least for the next two-to-three quarters.

The biggest opportunity likely will be in acquisitions — particularly for cloud services or solutions. Salesforce (CRM) already has a partnership with ORCL, but that relationship has become rockier of late — consider CEO Marc Benioff’s leak of an “Analytics Cloud” session at next month’s Dreamforce event. That could be a spark for closer ties with Workday (WDAY), for example.

If you’re already in ORCL stock, hold for now. If you’re looking to buy, a dip of 5% or more would provide a buying opportunity.

As of this writing, Susan J. Aluise did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2014/09/orcl-stock-oracle-earnings-preview/.

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