Oracle Earnings: What to Watch
June 21 2017 - 08:29AM
Dow Jones News
By Jay Greene
Oracle Corp. is set to report financial results for its fiscal
fourth quarter after the close of trading Wednesday in New York.
Here's what you need to know:
EARNINGS FORECAST: Analysts surveyed by S&P Global Market
Intelligence expect Oracle to report adjusted profit of 78 cents a
share for the quarter that ended in May, down from 81 cents a year
earlier. The company reported 66 cents a share in net a year
ago.
REVENUE FORECAST: Analysts expect Oracle to post revenue of
$10.45 billion, down from $10.59 billion a year earlier.
WHAT TO WATCH:
-- CLOUD INFRASTRUCTURE: Oracle has made significant progress
shifting its applications business from licensed software sales to
subscription services delivered on-demand. Its so-called
software-as-a-service and platform-as-a-service businesses, which
Oracle reports combined, grew 73% in the fiscal third quarter.
Oracle also wants to compete in the infrastructure-as-a-service
market dominated by Amazon.com Inc., Microsoft Corp. and Alphabet
Inc.'s Google. In that market, its modest growth -- just 17% in the
fiscal third quarter -- has been swamped by larger gains from its
biggest rival, Amazon, whose web business grew 43% in the most
recent quarter. The new quarterly data will show if Oracle has been
able to make any headway.
-- CAPEX WATCH: Amazon, Microsoft and Google spent a combined
$31.54 billion in 2016 in capital expenditures and capital leases,
much of it on data centers to deliver cloud-infrastructure
services. Oracle's capital spending in the same window was just
$1.7 billion. The company has said it doesn't believe it needs to
spend as much as rivals to catch up, arguing its technology is
superior. That said, Stifel Nicolaus & Co. analyst Brad Reback
wrote in a research note that capital spending, as well as
operating expenses, will need to "expand meaningfully should
management be serious" about creating a global cloud-infrastructure
business.
-- REVENUE FLATLINING: If analysts' forecasts are right,
Oracle's annual revenue will climb 1% to $37.40 billion -- the
third consecutive year in which Oracle hasn't posted meaningful
growth. In the previous fiscal year, Oracle's revenue fell 3%; and
the year before that, it slipped than 1%. The flatlining revenue
comes as Oracle transitions from selling software licenses to one
that sells cloud-computing subscriptions.
-- NEW METRICS: Analysts at Morgan Stanley & Co., RBC
Capital Markets and Stifel Nicolaus & Co., among others, all
expect Oracle to announce new financial metrics for the coming
fiscal year. RBC's Ross MacMillan wrote in a research note that he
expects Oracle to create two segments under software revenue -- one
for applications and the other for database and technology. The
anticipated changes, he wrote, will provide insight into growth
trends in each area, though he cautioned they "will remove clarity"
as businesses get mixed together that have varying gross
margins.
Write to Jay Greene at Jay.Greene@wsj.com
(END) Dow Jones Newswires
June 21, 2017 08:14 ET (12:14 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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