Software giant Oracle (ORCL) will report third quarter fiscal 2021 earnings results after the closing bell Wednesday. Driven by renewed cloud interest, Oracle shares have surged 15% in the past two weeks, besting not only the broader Technology Select Sector SPDR ETF (XLK), but also the 3% decline in the S&P 500 index.
The company is in the third year of this multi-year transition to a cloud subscription-based model. Investors are eager to see whether the database specialist can finally show increased cloud market share. And there appears to be progress in each key cloud area, starting with the Oracle Cloud Infrastructure segment, the company’s public cloud service, which competes with the likes of Amazon (AMZN), Microsoft (MSFT) and Alphabet (GOOG , GOOGL). Oracle’s Autonomous Database solution is another area of interest for among the analyst community.
Oracle’s growth initiatives are poised to drive long-term revenue growth. The question is, by how much? The company’s quarterly profits have topped consensus estimates for twelve straight quarters. Now trading near 52-week highs, the market appears willing to assign multiple expansion to Oracle shares with growth expected for the first time in almost ten years. But for the stock to to keep rising, aside a top- and bottom-line beat Wednesday, Oracle guidance for 2021 must suggest it is ready to stake a legitimate claim to the cloud market.
In the three months that ended January, Wall Street expects Oracle to earn $1.11 per share on revenue of $10.07 billion. This compares to the year-ago quarter when earnings came to 97 cents per share on revenue of $9.8 billion. For the full year, ending June, earnings are projected to rise 13% year over year to $4.36 per share, up from $3.85 a year ago, while full-year revenue of $40.1 billion would rise 2.6% year over year.
Oracle’s downbeat quarterly revenue growth forecast (up 2.8%) has contributed to the share price underperformance over the past decade, relative to it peers. Understandably, the lack of sustainable growth has impeded multiple expansion. But it hasn’t been due to a lack of effort. Faced with growing competition from cloud-based software providers, Oracle has attempted to compete via multiple M&A deals, including spending $9.3 billion in 2016 for cloud-based enterprise resource planning provider NetSuite. These type of deals are now starting to pay dividends.
In the second quarter, although EPS of $1.06 per share on revenue of $9.8 billion topped Wall Street expectations with revenue climbed 2% year over year. Notably, that was a solid improvement from Q1 when revenue rose just 1.6%. Notably, Cloud services and license support revenue rose 4% to $7.1 billion, beating consensus of $7.05 billion. Just as impressive is the fact that Oracle’s Fusion and NetSuite Cloud ERP applications businesses, which are highly profitable, grew revenue 33% and 21% respectively.
The Fusion and NetSuite businesses have been strong contributors to Oracle’s bottom line for several quarters. On Wednesday investors will want to see more growth acceleration in both categories, along with meaningful evidence that Oracle can finally emerge from cloud potential to cloud powerhouse.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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