Oracle Earnings Preview: Cloud Services To Drive Top Line Growth, Profits

by Trefis Team
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Oracle (NYSE:ORCL) is scheduled to announce its Q3’18 results on March 19. The company has reported a strong performance from its Cloud Services division in recent quarters, a trend which is likely to continue through the January ended quarter as well. Another positive for the company has been the improvement in Software Licenses and Services revenues, which picked up after a lackluster performance in fiscal 2017, ended May. Hardware revenues, on the other hand, remained fairly suppressed – a trend consistent in recent quarters. We have a $51 price estimate for Oracle’s stock, which is about in line with the current market price.

Oracle’s management has given modest guidance (with respect to consensus estimates) for the third fiscal quarter, with combined cloud services (IaaS, PaaS and SaaS) revenues expected to increase 23% on a year-on-year basis to $1.5 billion. As customers increasingly opt for cloud-based services including SaaS, IaaS and PaaS, the demand for on-premise deployment of software and applications is likely to suffer. As a result, hardware and new licenses revenues could witness limited growth in the coming years. Revenues from all other segments combined are expected to be about flat over the comparable prior year period, as shown below.

SaaS margins have improved substantially in the current fiscal year, and the company remains committed to achieving long-term gross margins of around 80% for the Cloud SaaS segment. However, with IaaS and core business margins likely to suffer in the near term, Oracle’s non-GAAP earnings per share is also likely to be about flat over Q3 FY’17 at around 69 cents per share.

We have summarized our Q3 FY’18 expectations for Oracle, based on the company’s guidance and our own estimates, on our interactive dashboard platform. If you think differently, you can change expected segment revenue, EBITDA margin and net income margin for Oracle to gauge how changes will impact its expected EPS.

See our complete analysis for Oracle

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