What To Expect From Oracle’s First Quarter Earnings?

by Trefis Team
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Oracle (NYSE:ORCL) is scheduled to announce its fiscal Q1 results on Monday, September 17. The company reported a solid 6% annual increase in revenues to $40 billion through the fiscal year ended May. However, Oracle reported a slowdown in Cloud Services revenues, which is a somewhat worrying trend for investors, since Cloud Services has been the fastest-growing revenue stream for the company in recent years. We expect the trend from recent quarters to continue through through the August-ended quarter. We have summarized the company’s fiscal Q1’19 outlook, based on the company’s guidance and our own estimates, on our interactive earnings preview dashboard for Oracle. 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.

Key Growth Trends

We forecast Oracle’s combined SaaS, PaaS and IaaS Cloud Services and License Support revenues to increase 6-7% on a y-o-y basis to $28 billion for the year. As a result, full year combined revenues are forecast to be up 2-3% to $41 billion. This trend is expected to be the key contributing factor to Q1’19 results as well. For the August-ended quarter, we expect Cloud Services and License Support revenues to be up 7% to $5.3 billion while other revenues combined are expected to be around 1-2% lower on a y-o-y basis to $4.1 billion for the quarter. Oracle’s combined SaaS, PaaS and IaaS revenues have driven growth in recent quarters, while Software License and Product Support revenues have witnessed limited growth. Similarly, Hardware and Services revenues have witnessed low single-digit declines.

In terms of margins, SaaS margins have improved by around 2-3 percentage points through the previous 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 in FY’18, which led its non-GAAP operating margin to expand by over a percentage point. We expect this to continue in FY’19 as well, albeit at a slower pace. We expect a 30-40 basis point improvement in the company’s operating profit margin to 41.6% for the quarter. As a result, we expect net income and EPS to be up in mid single digits over the comparable prior year period to $2.8 billion and $0.69, respectively. Our forecasts are roughly in line with consensus estimates.

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