Credit: Shutterstock photoWall Street expects another strong performance when Oracle (ORCL) reports first quarter fiscal 2018 earnings results after the closing bell Thursday.
Oracle shares, which soared to an all-time high Wednesday to $52.98, have skyrocketed 37% year to date, besting the 10% rise in the S&P 500 index. The stock has rallied from around $38 at the beginning of the year, thanks largely to better-than-expected growth in cloud markets, where it competes with leaders like Salesforce (CRM) and Microsoft (MSFT).
The Redwood City, Calif.-based tech giant has become the model for what International Business Machines (IBM) and, to a lesser extent Cisco (CSCO), aspires to become. The rate at which the management has accelerated cloud adoption, particularly in cloud Infrastructure-as-a-Service (IaaS), Platform-as-a-Service (PaaS) and Software-as-a-Service (SaaS), has been impressive.
Each area has posted high double-digit annual growth rates, offsetting weakness in the company’s core software licenses business and hardware businesses. During fiscal year 2017, Oracle’s combined PaaS and IaaS revenue grew by almost 60%, asserting the company’s relevance not only when compared to Salesforce and Microsoft, but it also puts Oracle on the path to take on Amazon (AMZN).
Even more noteworthy has been the fact that Oracle’s legacy business, which it’s trying to shed, has shown growth. And with the emerging Cloud business still accounting for less than 15% of Oracle's total revenue, the future -- in terms of both the direction of the legacy and growth businesses — looks bright. And Wall Street expects these growth trends to continue well into 2018.
For the quarter that ended August, analysts expect Oracle to report adjusted earnings of 60 cents per share on revenue of $9.02 billion. This compares to the year-ago quarter when earning were 55 cents per share on $8.61 billion in revenue. For the full year, ending May, earnings are projected to be $2.95 per share, up from $2.74 a year ago, while revenue of $39.43 billion would rise about 4% year over year.
In the fourth quarter, Oracle blew by consensus EPS estimates by 11 cents, posting Q4 EPS of 89 cents against expectations of 78 cents. The surprise was on the top line where revenue came in at $10.94 billion, while the Street expected $10.45 billion, driven by 135% surge in IaaS revenue. This prompted Jeffries analysts to refer to the quarter as Oracle's strongest result for new business in years.
This explains why ORCL stock is now trading at near 52-week highs, priced on the assumption that out will deliver a top- and bottom-line beat on Thursday. The company must nonetheless show analysts signs it can sustain its level of execution, and, in some cases, show acceleration. Analysts will also want some evidence that the Netsuite acquisition, which recently closed, can deliver the SaaS growth in the quarters ahead Oracle predicted.
That said, while ORCL shares are no longer in the discount bin, it would be a mistake to part with a stock and company with momentum in its sails. As such, these shares could reach $60 to $65 in the next 12 to 18 months, delivering some 20% return.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
