Earnings preview: Weak cloud to hurt Oracle Q2 results

Oracle (ORCL) is scheduled to release its earnings for the second quarter on Monday after the bell. The top line is likely to be hurt by a fall in cloud services due to more stringent competition while the bottom line could show growth helped by lower costs and expenses. The enterprise software company could post better-than-expected earnings despite missing on revenue.

Analysts, on average, expect the company to report earnings of $0.78 per share on revenue of $9.52 billion for the second quarter. In comparison, during the previous year quarter, the company posted a profit of $0.70 per share on revenue of $9.63 billion. Majority of the analysts recommended a “strong buy” or “buy” rating on the stock with an average price target of $52.90.

Investors remained concerned about the lack of clarity of the revenue outlook for each segment. This was due to the adoption of new accounting standard last year and merging its SaaS, PaaS and IaaS cloud services with the software license division. Oracle is expected to increase its investment in the already slowing cloud business as it poised to face more stringent competition.

The performance for the second quarter is likely to be dragged by the muted revenue growth while the company’s core business remains relevant even in the changed industry scenario. The company has been undergoing a change in its product portfolio from a traditional model of licensing and maintenance to a subscription-based business focused on cloud computing.

Oracle stock falls on weak cloud business; earnings top estimates

For the first quarter, Oracle posted a 6% increase in earnings as growth in cloud services and license support revenue drove the total revenues higher. In the slowest quarter of the year, the top line was pressurized by weak cloud business that could face more tough competition.

Recently this week, Oracle filed a suit in federal court alleging that the Pentagon’s planned $10 billion JEDI contract with its single-vendor award is unfair and illegal. The single-award approach is contrary to well-established procurement requirements and is out of sync with the industry’s multi-cloud strategy.

For months, Oracle has complained that the contract has been favoring the industry leader, Amazon (AMZN) Web Services. And the JEDI contract process is about determining the cloud strategy for the Department of Defense for the next decade. IBM (IBM) has also filed a similar protest in October, citing many of the same arguments.

Shares of Oracle opened lower on Friday and remained in the red territory throughout the day. The stock has fallen over 5% in the past year and over 4% in the past three months.

Listen to publicly listed companies’ earnings conference calls along with the edited closed caption text.