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Oracle (ORCL) Gears Up for Q2 Earnings: What's in Store?

Zacks Equity Research
Oracle Corporation's (ORCL) Q2 results to benefit from momentum in its Software-as-a-Service (SaaS) and Platform-as-a-Service (PaaS) offerings.

Oracle Corporation ORCL is set to report fiscal second-quarter 2018 results on Dec 14. Notably, the company has beaten estimates in three of the trailing four quarters, delivering an average positive surprise of 6.76%.

Last quarter, the company reported non-GAAP earnings of 62 cents, which increased 12.3% on a year-over-year basis and also beat the Zacks Consensus Estimate of 61 cents.

Further, revenues of $9.21 billion increased 7% year over year and surpassed the consensus mark of $9.03 million.

Expect What?

The current Zacks Consensus Estimate for the quarter under review is pegged at 68 cents compared with 61 cents in the year-ago period. The earnings estimate has remained stable in the last 30 days. Further, the Zacks Consensus Estimate for revenues is pegged at $9.557 billion, up roughly 5.4% from the year-ago quarter.

Let's see how things are shaping up for this announcement.

Factors Influencing Q2 Results

Oracle is benefiting from significant momentum in its Software-as-a-Service (SaaS) and Platform-as-a-Service (PaaS) offerings. This has also helped in improving the company's competitive position against salesforce.com and Workday. We believe that the company’s growing cloud market share will continue to drive top-line growth. This is further evident from the expanding customer base.

Cloud SaaS revenues during the last reported quarter advanced a significant 61.6% (62% in constant currency) year over year to $1.09 billion. Cloud Platform as a Service and Infrastructure as a Service (IaaS) revenues surged 29.2% (28% in constant currency) to $403 million. The Zacks Consensus Estimate for IaaS is pegged at $421 million.

Recently, Oracle unveiled its blockchain services on cloud, after around two months of collaborating with Hyperledger, Linux Foundation’s open source underlying technology behind the blockchain build-up. Oracle’s entry in the expanding blockchain market is anticipated to be a positive for its top and bottom line and will also boost shares going forward.

Going forward, the next-generation autonomous database launched by Oracle, which is supported by machine learning, is a key catalyst. Management believes that the new database will improve Oracle’s competitive position in the cloud against Amazon Web Services (AWS).

However, higher investments on IaaS will affect gross margin expansion in the near term. Further, a strong U.S. dollar remains a headwind.

Earnings Whispers

Our proven model does not conclusively show that Oracle is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: Oracle currently has an Earnings ESP of 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 68 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Oracle has a Zacks Rank #3 that increases the predictive power of ESP. However, the company’s ESP of 0.00% makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks with Favorable Combination

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

NVIDIA Corporation NVDA has an Earnings ESP of +2.37% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

DISH Network Corporation DISH has an Earnings ESP of +0.61% and a Zacks Rank #3.

Costco Wholesale Corporation COST has an Earnings ESP of +1.64% and a Zacks Rank #3.

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