Oracle (ORCL) is set to announce earnings for the August quarter this evening after the market close. The Street is expecting the company to report earnings of $0.58 per share on revenues of $8.7 billion. For the current quarter ending in November, the Street estimates earnings of $0.65 per share on revenues of $9.26 billion.
Some of the key areas to watch for are cloud, licensing and the NetSuite (N) acquisition integration.
Oracle has been a bit late to the cloud but has made a few acquisitions in the space that have allowed it to post very strong growth in that segment. That is the upside. The downside, you ask? Tougher comps year on year and sequentially as well.
On the flip side of the strong growth in cloud, the company has been seeing a slowdown in its software licensing business. So the question in investors' minds that management will have to answer is whether the company is sacrificing the higher-margin licensing business with the focus on growing its cloud business. If so, will cloud margins down the road be sufficient to offset the declines in licensing? If not, why is licensing slowing as cloud picks up? Tough spot for Oracle management, any way one looks at it.
The sell side expects cloud growth (software as a service, or SaaS, and platform as a service, or PaaS) to come in between 67% and 72% year over year, but it is still a small segment of the overall revenues for Oracle, contributing 10% to 12% to the top line.
The key question as far as the NetSuite acquisition is how Oracle management proposes to tackle the issue of T. Rowe Price, the largest institutional shareholder in NetSuite, voting against the acquisition at the current price of $109 per share. Another issue raised by T. Rowe is the cozy relationship between Oracle Executive Chairman Larry Ellison and NetSuite given the fact that Ellison owns almost 40% of the company and will obviously be the biggest beneficiary if the takeover goes through.
In my opinion, Ellison and Oracle will have to sweeten the deal, in which case T. Rowe Price will more than likely take the deal and head for the hills as fast as they can.
Finally, it will be interesting to see whether Oracle is feeling the same slowdown that Salesforce (CRM) did when it lowered the guide for its current quarter when it reported earnings a couple of weeks ago. CRM said at the time this was a company-specific issue and not systemic. We shall soon find out.
I am agnostic on Oracle but am long N calls in the event of a higher offer than $109 a share.
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