What To Expect From Oracle’s Fourth Quarter Earnings

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Oracle (NYSE:ORCL) is scheduled to announce its fiscal Q4 results on June 19. The company has reported a solid 6% annual increase in revenues to $28.6 billion through the first three quarters. Oracle has witnessed a strong demand for its Cloud Services offerings in recent quarters, which has helped drive top line growth and offset the negative impact of the slowing hardware and software businesses. This trend is likely to continue in the fourth fiscal quarter as well.

We forecast Oracle’s combined SaaS, PaaS and IaaS revenues to increase 30% on a y-o-y basis to $1.8 billion for the quarter. As a result, full year combined cloud revenues are forecast to be up 31-32% to $6.3 billion. On the other hand, we forecast the company’s core software, hardware and services revenues combined to be around 2% lower on a y-o-y basis to $9.3 billion for the quarter. Resulting full year combined non-cloud revenues should be roughly flat over FY’17 levels at around $33.3 billion. We have summarized the company’s fiscal Q4 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.

Oracle’s combined SaaS, PaaS and IaaS revenues have increased at over 30% in recent quarters, while software license and product support revenues have witnessed limited growth. Similarly, hardware and services revenues have witnessed declines in low single digits through the year. In terms of margins, SaaS margins have improved by around 2-3 percentage points through the current fiscal year to over 65%. The company remains committed to achieving long-term gross margins of around 80% for the Cloud SaaS segment, while IaaS and core business margins will likely see some pressure in the near term. On the other hand, the software segment has maintained high gross margins of over 95% in recent years. Oracle has managed its operating expenses (particularly sales and marketing expenses) efficiently through the first three quarters, which led its non-GAAP operating margin to expand by a percentage point. We expect this to continue in the fourth quarter as well, with a 70-80 basis point improvement in the company’s operating profit margin to 46.8%. As a result, we expect net income and EPS to be up in mid single digits over the comparable prior year period to $3.9 billion and $0.93, respectively. Our forecasts are roughly in line with consensus estimates.

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