Oracle (NYSE: ORCL) is scheduled to report its fiscal Q2 2023 results on Monday, December 12. We expect Oracle to edge past the consensus estimates of revenues and earnings. The technology giant posted mixed results in the last quarter, with revenues meeting expectations but earnings missing the mark. It reported total revenues of $11.45 billion – up 18% y-o-y, mainly driven by a 14% increase in the cloud services and license support revenues and a 74% jump in the services segment. The services unit benefited from the Cerner acquisition and revenue growth in each of the primary services offerings. We expect the same trend to continue in the second quarter (Note – Oracle’s FY’22 ended on May 31, 2022. Q2 FY’23 refers to the quarter that ended on November 30, 2022).
Our forecast indicates that Oracle’s valuation is $87 per share, which is 10% above the current market price of just above $79. Our interactive dashboard analysis on Oracle’s Earnings Preview has more details.
(1) Revenues likely to remain just above the consensus estimates
Oracle’s revenues increased 5% y-o-y to $42.4 billion in FY 2022. The growth was primarily due to a 5% growth in the cloud services & license support revenues, followed by a 9% rise in the cloud license & on-premise license segment.
- The cloud & license business grew 6% to $36.1 billion in FY2022. Notably, the cloud & license category (includes cloud services & license support, and cloud license & on-premise license sub-segments) contributes close to 85% of the top line. Further, the same trend continued in Q1 FY2023, with the segment revenues touching $9.3 billion (up 14%). We expect the same momentum to continue in the second-quarter results.
- The hardware revenues decreased 5% y-o-y in FY2022. Further, the Q1 FY2023 revenues were at par with the year-ago period. We expect the Q2 results to be on similar lines.
- The services revenues increased 6% y-o-y in FY2022. In addition, the segment witnessed strong growth in the first quarter of the current fiscal year. It was partly due to acquisition and partly due to organic growth. We expect the same to follow in the second quarter.
- Overall, we estimate Oracle’s revenues to remain around $45.5 billion for FY2023.
Trefis estimates Oracle’s fiscal Q2 2023 revenues to be around $12.11 billion, just above the $12.04 billion consensus estimate.
(2) EPS is expected to marginally beat the consensus estimates
Oracle Q2 FY2023 adjusted earnings per share (Non-GAAP EPS) is expected to be $1.20 per Trefis analysis, almost 2% above the consensus estimate of $1.18. The net income was reduced by 51% y-o-y in FY 2022, mainly due to higher expenses as a % of revenues and an unfavorable increase in effective income tax. Further, the same trend continued in the first quarter of FY 2023 – net income was down 37% y-o-y to $1.55 billion. That said, we expect the profitability figures to improve in Q2. Overall, Oracle is likely to report an adjusted net income of $14.3 billion and annual GAAP EPS of $5.39 in FY2023.
(3) Stock price estimate is 10% higher than the current market price
We arrive at Oracle’s valuation, using an EPS estimate of around $5.39 and a P/E multiple of just above 16x in fiscal 2023. This translates into a price of $87, which is 10% above the current market price of around $79.
Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Adjusted Earnings for the full year
|S&P 500 Return||-3%||-17%||76%|
|Trefis Multi-Strategy Portfolio||-4%||-21%||214%|
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