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Earnings preview: Mixed sentiment ahead of Oracle’s Q3 earning report

Software solutions provider Oracle Corp. (ORCL) will be reporting its third-quarter results on March 14 after the closing bell. The market predicts that earnings will edge up to $0.84 per share in the February quarter from $0.83 per share last year. The forecast for revenue is $9.6 billion, down 1.8% compared to the third quarter of 2018.

Oracle second quarter 2019 Earnings Infographic
Oracle Corp Q2 2019 Earnings Infographic

After ending the first half of the fiscal year on a positive note, the company had expressed optimism that the trend will continue in the rest of the year. The upbeat sentiment is justified to some extent by the rapid adoption of cloud-based ERP systems among enterprises and the growing demand for the Oracle Fusion ERP Cloud.

But market watchers are a bit skeptical as they see Oracle’s cloud business facing stiff competition from Amazon (AMZN) Web Services and Microsoft’s (MSFT) Azure, which continue to dominate the sector. As a result, margins will come under pressure from unfavorable pricing and higher costs associated with investments in infrastructure, adding to the ongoing squeeze on profitability from the faltering hardware business.

Margins will likely come under pressure from unfavorable pricing and higher costs associated with investments

Meanwhile, the management has a difficult task in hand – handling the various litigations related to business disputes, especially the one involving tech firm Rimini Street. Currently, analysts’ consensus rating on Oracle’s stock is hold and the average price target is $54.

In the second quarter, adjusted earnings grew 16% and topped expectations. At $9.56 billion, revenues were almost unchanged year-over-year but came in above the forecast. Of late, the company has been witnessing a steady increase in the number of customers, mainly for the NetSuite ERP service.

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In January, Amazon Web Services reported a 45% growth in cloud revenues for its most recent quarter, driving total revenues and earnings higher by double-digit percentages. Among others, Salesforce (CRM) last week reported a 26% growth in revenues to $3.6 billion.

Oracle’s stock gained steadily over the years while the performance of its earnings per share remained subdued. The shares have maintained an uptrend since they bounced back from a multi-week low in December last year, gaining about 23%. Though the stock is currently hovering near the peak seen a year earlier, it continues to underperform the sector.

 

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