Did Cloud Revenues Arrest The Decline In Oracle’s Top Line Over Fiscal Q4?

Oracle (NYSE:ORCL) will report its fiscal Q4 and full year 2019 results on Wednesday, Jun 19. The company has delivered results that have exceeded market’s expectations the last couple of quarters. However, the growth in cloud revenues is yet to fulfill the promise of completely offsetting the decline in legacy businesses. While Larry Ellison has maintained that the current year should see an inflection, investors will be looking for cues around conversion of interest seen in Q3 into actual sales.

Per Trefis estimates, Oracle’s shares have a fair value of $52, which is slightly below the current market price. Our interactive dashboard on Oracle’s Fiscal Q4 Expectations outlines our forecasts and estimates for the company. You can modify any of the key drivers to visualize the impact of changes on its valuation. Additionally, you can see more Trefis technology company data here.

A Quick Look At Oracle’s Revenue Sources

Oracle earns money through the sale of enterprise software and associated hardware. The company had launched its Gen 2 cloud and Autonomous database in order to increase the ‘as a service’ component in its offerings. The company reported $39.8 billion in total revenues for fiscal 2018, spread out across 4 reporting divisions:

• Cloud services and license support (2018 revenue of $26.3 billion, 66% of total revenue): Segment revenues are derived from the sale of subscription for Oracle Cloud Services and product upgrades.
• Cloud license and on-premise license (2018 revenue of $6.2 billion, 15.5% of total revenue): Segment revenues are derived from the sale of software licenses to be used on-premise or in the cloud.
• Hardware (2018 revenue of $3.4 billion, 8.5% of total revenue): Segment revenues are derived from the sale of hardware products and related software.
• Services (2018 revenue of $4 billion, 10% of total revenue): Segment revenues are derived from the sale of consulting and technical support services.

Summarizing Fiscal Q3 Performance, And Highlighting Our Expectations For Q4 and Full-Year 2019:

• Cloud services and license support: This segment has seen an increase of $4.5 billion over 2016-18. Q3 revenue grew to $6.7 billion (1.1% y-o-y). We expect Q4 revenue to grow to $6.9 billion (1.8% y-o-y), and full-year 2019 revenue to increase to $26.8 billion (2.1% y-o-y).
• Cloud license and on-premise license: This segment has seen a decrease of $1.1 billion over 2016-18. Q3 revenue fell to $1.3 billion (-3.7% y-o-y). We expect Q4 revenue to decline to $2.2 billion (-2% y-o-y) and 2019 revenue to decrease to $5.5 billion (-10.5% y-o-y).
• Hardware: This segment has remained largely level at $3.4 billion over 2016-18. Q3 revenue fell to $0.9 billion (-7.9% y-o-y). We expect Q4 revenue to decline to $1.1 billion (-1.5% y-o-y).
• Services: This segment has seen a decrease of $0.7 billion over 2016-18. Q3 revenue fell to $0.8 billion (-1.3% y-o-y). We expect Q4 revenue to decline to $0.9 billion (-1% y-o-y) and the figure for full-year 2019 revenue to fall to $3.3 billion (-17.6% y-o-y).

We forecast Oracle’s EPS figure for full-year 2019 to be $3.57. Taken together with our trailing P/E multiple of 15x for the company, this works out to a $52 per share price estimate for the company’s stock, which is slightly below the current market price.

Do not agree with our forecast? Create your own price forecast for Oracle by changing the base inputs (blue dots) on our interactive dashboard.