What To Expect From Oracle’s Fiscal 2019 After Disappointing Earnings?

June 21st, 2018 by Trefis Team
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Oracle (NYSE:ORCL) announced its fiscal Q4 results on June 19. While the company reported a 6% annual increase in revenues to $40 billion through the fiscal year ended May, the company reported a slowdown in cloud services revenues. This is a worrying trend for investors, since cloud services has been the fastest growing revenue stream for Oracle with core on-premise software, hardware and services revenues slowing down in recent years. As a result of a slowdown in cloud services (SaaS, PaaS and IaaS) revenues, Oracle’s stock price has plummeted from $52-53 to around $43 in the last six months.

Going forward, we forecast Oracle’s combined Cloud Services & License Support revenues (which includes SaaS, PaaS, IaaS and software support revenues) to increase 7% on a y-o-y basis to $28 billion for the current fiscal year. On the other hand, we forecast the company’s core on-premise software licenses, hardware and services revenues to witness modest declines. Resulting full year combined non-cloud revenues should be 5-6% lower over FY’17 levels at around $12.9 billion. We have summarized the company’s fiscal 2019 outlook, based on the company’s guidance and our own estimates, on our interactive dashboard platform. If you disagree with our forecasts, you can change the key drivers – such as segment revenue and margins – for Oracle to gauge how changes will impact its expected earnings.

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In terms of margins, SaaS and software segments should help the company sustain high gross margins. On the other hand, hardware, services and the expansion in IaaS & PaaS is likely to weigh on company-wide margins. As a result, we expect the company’s operating profit margin to be roughly flat over FY’18 at 47%. As a result, we expect EPS to be up in 2-3% over the comparable prior year period to $3.20. Our EPS forecast is slightly lower than consensus estimates.

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