By: Craig Bowles
Oracle Corporation (ORCL) is slated to report 2Q 2018 earnings after the bell on Thursday, December 14th. The earnings release is expected at approximately 4:00 p.m. ET with a 5:00 p.m. conference call and live webcast available at Oracle Investor Relations. Given its size and influence, the reaction to Oracle’s earnings can have a meaningful impact on other markets, including the S&P E-Mini Index Futures & NASDAQ E-Mini Futures.
Outliers & Strategy
- Non-GAAP Earnings Per Share (EPS): Company guidance is $0.64 to $0.68 (from their September conference call). The Street estimate is $0.68. (source: Yahoo! Finance) Consensus was $0.69 three months ago.
- Revenues: Company guidance is 2-4% y/y growth or $9.2 bln to $9.4 bln. Analysts expect an increase of 5.5% y/y to $9.57 bln (range $9.46 bln to $9.74 bln).
- New Software Licenses and Cloud Software Subscriptions Revenues: The last four quarters average -12% compared to the prior year, so a similar 2Q y/y decline would be targeting $1.189 bln.
- P/E of 20.9 compares to a 5-year average of 22.7; P/B of 3.6 compares to a 5-year average of 3.6; P/S of 5.3 compares to a 5-year average of 4.5; P/CF of 13.7 compares to a 5-year average of 12.5. Dividend yield of 1.5% compares to a 5-year average of 1.3%.
- Analysts view Oracle with 30 Buy, 11 Hold, and 0 Sell ratings, according to MarketBeat.com.
- Oracle insiders sold 301,049 shares over the last three months and 9,494,472 shares in the past year (source: NASDAQ.com). After spending $10.5 billion on stock buybacks in FY2016, FY2017 fell to $3.8 billion and the past 12 months is $2.5 billion.
- Oracle results could impact software developers such as Microsoft (MSFT), CA Technologies (CA), and International Business Machines (IBM).
- Oracle shares have a 1-day average price change on earnings of 5.58%. Options are pricing in an implied move of 5.91% off earnings.
- 11/30: Amazon introduced new features for Amazon Web Services at its annual AWS conference. Oracle is still dominant with 41.6% market share, according to a post on Fool.com.
- 11/15: Zacks Investment Research upgraded Oracle to Buy from Hold citing significant momentum in the SaaS offerings. The company stated that it is wining market share against Salesforce and Workday, according to a post on americanbankingnews.com.
- 11/09: UBS downgraded Oracle to Neutral from Buy citing difficulty in the transition of Oracle’s infrastructure business into the cloud; the highly competitive cloud market, the less attractive margin characteristics of IaaS and PaaS; and limited opportunity to smooth/accelerate the transition via M&A, according to a post on Benzinga.com.
- 10/12: Credit Suisse reiterated an Outperform rating on Oracle citing optimism about the ERP cloud opportunity in front of the company. Estimates that every five points of ERP market share gain will translate into 40 cents of recurring, non-GAAP earnings. Market share gains are quite possible for Oracle, given that some 45% of survey respondents rate Oracle ERP or NetSuite as the best cloud financial management product available, according to a post on Barron’s.com.
- 10/05: IDC believes Microsoft is more of a threat than Amazon, because of the types of big business customers that Oracle depends on, according to a post on Businessinsider.com.
- 10/03: At Oracle’s OpenWorld conference, founder Larry Ellison said during his keynote that Oracle would guarantee, in writing, that its new database service would cost less than half the price and much faster than compared to Amazon Redshift running on AWS, according to a post on Fool.com.
Oracle may have a superior product but analysts worry about pricing and long-term revenue growth. Shares haven’t done much since the June earnings release spike. The technology sector has struggled as a group since November 8th when 2-year smoothed growth rates hit 98.4%, their highest since the dot.com boom. (The overall market tends to struggle after one the sectors gets to around 100% and that sector tends to underperform until after the next upswing.) Oracle’s cloud revenue is promising. The company has become a leader in analytics for internet marketing. Analyst bullishness increased the past three months. Insider selling eased but is still a worry. Over the past four quarters, the company has beaten and missed earnings estimates by an average of 5c. Estimize consensus for Non-GAAP EPS of $0.69 on revenue of $9.59 bln compares to analyst consensus of $0.68 on revenue of $9.57 bln. New license and cloud software subscription revenue will be of interest after improvement the last two quarters. Guidance is given during the conference call.
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