A month has gone by since the last earnings report for Oracle Corporation (NYSE:ORCL) . Shares have lost about 11.4% in that time frame.
Will the recent negative trend continue leading up to its next earnings release, or is ORCL due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Recent Earnings
Oracle delivered modest third-quarter fiscal 2018 results. Non-GAAP earnings of 83 cents per share comfortably beat the Zacks Consensus Estimate of 72 cents. However, revenues of $9.776 billion came almost in line with the Zacks Consensus Estimate figure of $9.771 billion.
Earnings increased 20.3% from the year-ago quarter. This can primarily be attributed to 6% (2% in constant currency) growth in revenues that was higher than management’s guidance of 2-4%.
Oracle’s top-line growth benefited from the ongoing cloud-based momentum. Total cloud revenues (16% of total revenue compared with 13% in the year-ago quarter) advanced 32% (29% in constant currency) to $1.57 billion.
Moreover, total cloud and on-premise software revenues increased 8% (4% in constant currency) to $7.98 billion. We believe that the company’s growing cloud market share will continue to drive top-line growth in the foreseeable future.
Cloud Drove Solid Top Line
Cloud SaaS revenues advanced a significant 33% (31% in constant currency) year over year to $1.151 billion. Cloud PaaS and IaaS revenues surged 28% (24% in constant currency) to $415 million.
On-premise software revenues (66% of total revenues compared with 67% in the year-ago quarter) increased 4% (flat at constant currency) to $6.4 billion reflecting continued higher attachment rates of software support and renewal rates.
Management stated that Fusion ERP and Fusion HCM soared 65%. Further, the next-generation autonomous database launched by Oracle, which is supported by machine learning, is now fully available and is a key catalyst for the company. Management believes that the new database will improve Oracle’s competitive position in the cloud against Amazon (NASDAQ:AMZN) Web Services (“AWS”).
Software license updates and product support revenues were almost $5.027 billion, up 6% (1% in constant currency). On a combined basis, on-premise support and SaaS revenues were up 8%.
Total hardware revenues slipped 3% (down 7% at constant currency) year over year to $994 million. Services revenues decreased 2% (6% at constant currency) to $796 million.
Operating Details
Cloud Software as a service margin came in at 67% as compared with 65% reported in the year-ago quarter. Cloud PaaS and IaaS margin came in at 35% as compared with 46% reported in the year-ago quarter.
Non-GAAP operating expenses, as percentage of revenues, decreased 140 basis points (bps) to 56.1%. The decline was due to lower hardware, Software license updates and product support and research & development expenses, which were down 10%, 17% and 2%, respectively.
As a result, non-GAAP operating margin expanded 100 bps from the year-ago quarter to 44%.
Balance Sheet & Cash Flow
As of Feb 28, 2018, Oracle had cash & cash equivalents and marketable securities of $70.45 billion, down from $71.58 billion sequentially. Operating cash flow during the quarter was $15.19 billion, while free cash flow was $13.3 billion.
Share Repurchases & Dividends Continue
Oracle repurchased around 81 million shares worth $4 billion during the quarter. Over the last 12 months, the company repurchased shares worth $7 billion and paid dividends of approximately $3.2 billion. The company also declared a quarterly dividend of 19 cents per share, payable on May 1, 2018.
Guidance
For the fourth quarter, total revenues are anticipated to grow in the range of 1-3% and 0% to (2%) in constant currency.
Cloud revenues including Software as a service (SaaS), Platform as a Service (PaaS) and Infrastructure as a Service (IaaS) are expected to grow between 19% and 23% (17-21% in constant currency), much lower than 32% (29% in constant currency) reported in the last quarter.
Non-GAAP earnings are anticipated to be between 92 cents and 95 cents for the quarter, with a positive impact of couple of cents from favorable currency tailwind. The Zacks Consensus Estimate is pegged at 90 cents per share.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. There have been ten revisions higher for the current quarter.
VGM Scores
At this time, ORCL has an average Growth Score of C, however its Momentum is doing a bit better with a B. The stock was also allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is more suitable for value and momentum investors than growth investors.
Outlook
Estimates have been trending upward for the stock and the magnitude of these revisions looks promising. Interestingly, ORCL has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Oracle Corporation (ORCL): Free Stock Analysis Report
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