Oracle's Past Surprises on Guidance Leave Analysts Wary
June 19 2018 - 6:29AM
Dow Jones News
By Jay Greene
Oracle Corp. is set to report financial results for its fiscal
fourth quarter after the close of trading Tuesday. Here's what you
need to know:
EARNINGS FORECAST: Analysts surveyed by S&P Global Market
Intelligence expect Oracle to report adjusted profit of 94 cents a
share for the quarter that ended in May.
REVENUE FORECAST: Analysts expect Oracle to post revenue,
adjusted for acquisition accounting, of $11.17 billion, up from
$10.94 billion a year earlier. The company reported $10.89 billion
in nonadjusted revenue a year ago.
WHAT TO WATCH:
SOUR SENTIMENT: In each of the previous three quarters, Oracle
management shook investors with guidance that fell below
expectations. Three months ago, the Redwood City, Calif.,
business-software maker said cloud-computing revenue would climb
19% to 23% in the quarter that just ended, while analysts had
expected 23% growth. That sank Oracle shares more than 9% the next
day to $47.05. The stock hasn't closed above $50 since, and
finished Monday at $46.52. Barclays analyst Raimo Lenschow expects
Oracle to post 20.5% growth in its cloud business, writing in a
recent research report that he's uncertain if the fiscal fourth
quarter "will necessarily be the beginning of a sustained
multi-quarter recovery in the shares just yet." That said, Mr.
Lenschow added, "with investor sentiment being very low and the
shares at cheap valuation levels, we see limited downside risk this
quarter."
GUIDANCE WATCH: With Oracle's below-expectations guidance for
cloud revenue in recent quarters, Wall Street will focus on the
company's forecast for its fiscal first quarter. Management
typically provides that during a conference call with analysts
after the company reports results. The consensus among analysts is
for cloud revenue to climb 21.8% in the current quarter to $1.82
billion.
SPENDING SLIDES: Oracle shares took a hit last week after
JPMorgan Chase & Co. analyst Mark Murphy downgraded his rating
to 'neutral' from 'overweight' and reduced his December 2018 price
target to $53 from $55 based on corporate spending concerns.
Roughly 21% of the 154 chief information officers surveyed by
JPMorgan said they plan to reduce spending on Oracle products, the
worst performance among the 25 tech companies about which the firm
asked. Moreover, when asked to name the "most critical and
indispensable" tech vendors, CIOs cited Oracle less than in the
past, while increasingly mentioning Amazon.com Inc.'s rival Amazon
Web Services unit. That shift, Mr. Murphy wrote, is "creating the
appearance of a 'sucking sound' out of Oracle and into AWS."
DATA-CENTER COSTS: To compete against AWS, as well as Microsoft
Corp.'s Azure and Alphabet Inc.'s Google Cloud, Oracle is boosting
its development of offerings that provide computing resources and
storage over the internet, known as infrastructure as a service.
But building that business is costly, requiring multibillion-dollar
investments in data centers around the world to deliver the
technology. In February, the company said it planned to quadruple
the number of its biggest data-center complexes globally over the
next two years, adding that it will boost spending as business
needs dictate. Nonetheless, UBS Securities analyst Jennifer Lowe
expects $1.8 billion in capital expenditure in the latest quarter,
down from $2.0 billion a year ago.
Write to Jay Greene at Jay.Greene@wsj.com
(END) Dow Jones Newswires
June 19, 2018 06:14 ET (10:14 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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