Perfectly unaligned with most earnings schedules, Oracle (ORCL) will be reporting last quarter’s results after the market closes this Wednesday.
During the thick of Q2’s earnings season, owners of Oracle stock watched peers and rivals like IBM (IBM), SAP (SAP) and Salesforce (CRM) post results that were all over the map, obscuring what owners could reasonably expect with the upcoming Oracle earnings news.
But slowing revenue growth, along with a couple of earnings shortfalls within the past four quarters, has to be weighing on their minds. Shares of ORCL are down more than 15% so far this year.
Indeed, if there was ever a stock that needed a solid quarter to restore waning faith in the underlying company, ORCL is it.
Oracle Earnings Outlook
As of the latest tallies, analysts collectively expect Oracle to post earnings of 52 cents per share on revenue of $8.5 billion for its first fiscal quarter of 2016. Both numbers are weaker than the profit of 62 cents per share of Oracle stocks the company earned in the same quarter a year earlier, when it generated $8.6 billion in sales.
The lowered expectations are simply a reflection of a trend analysts have seen developing for a while. Not only did the company’s top line fall from $38.3 billion to $38.2 billion last year, but income slipped from $10.96 billion to $9.94 billion as the advent of cloud computing — where Oracle has yet to thrive — has given database customers a new and more flexible choice.
Perhaps even worse, Oracle earnings and revenue estimates have failed to beat estimates in five of the past six quarters.
And yet, those same lowered expectations may be an opportunity for ORCL to top expectations for a change.
3 Things for Oracle Stockholders to Know
Not that the company and its future can be boiled down to just three premises, but these three core ideas will push Oracle stock higher or lower more than most other factors will.
In no certain order:
- Oracle Is Finally Getting (Clumsy) Traction With Its Cloud Offerings. As Pacific Crest analyst Brendan Barnicle noted last week, the company did close some new cloud-based deals during its first fiscal quarter. On the other hand, as one unnamed Oracle customer recently shared with Business Insider, the company strong-armed this organization into becoming a cloud customer. It may be a sign that the product isn’t exactly selling itself, implying cloud-based growth could continue to be tough for the foreseeable future.
- Oracle Is Getting Serious About IP: The company has always been fairly effective when it comes to making sure its software isn’t used illegally, or more specifically, without bearing revenue. But Oracle seems to have stepped up the effort. These measures include stepped-up auditing of VMWare (VMW) customers that keep Oracle’s software on standby as a backup; a copyright-infringement court case levied against Rimini that will begin this month; and even a legal battle with Google (GOOG, GOOGL), in which it claims parts of Google’s Android operating system uses parts of Oracle’s Java software. This is IP protection executed to a degree the company hasn’t mustered up until this point, but may be the shape of things to come.
- Acquisitions May Be Necessary: It has not been one of the oft-discussed topics surrounding Oracle of late, but perhaps it should be … would the company be better served by buying growth right now rather than trying to cultivate it organically? The recent acquisition of Maxymiser — for an undisclosed amount — along with a handful of other, small, off-the-radar deals could suggest this is the case. But a bigger move could be a relatively better deal. This includes a potential acquisition of Salesforce. Although the two outfits are outspoken rivals in public, as one unit, the two organizations could work quite well together.
These three matters may or may not come up during Wednesday’s earnings call, but current and would-be owners of Oracle stock may want to keep these ideas in mind all the same.
Bottom Line
While the future doesn’t look exactly bleak, there’s no denying ORCL has had a headwind in the past couple of years and has not handled it particularly well.
For the first time in a long time, however, Oracle appears to be taking its plight seriously.
Realistically speaking, convincing evidence that a turnaround has been completed won’t be evident after the Oracle earnings numbers are posted and the conference call is done. It is possible, however, that there will be some convincing evidence that the true turnaround has begun.
For now, that could be enough to buoy a beaten-down Oracle stock.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
