Oracle Corp (ORCL, Financial) is slated to announce its third quarter earnings report for fiscal 2015 on March 17. Oracle is the second largest software maker by revenue, after Microsoft. Given its size and influence, the reaction to Oracle’s earnings can have a meaningful impact on other software developers such as Microsoft (MSFT, Financial), CA Technologies (CA, Financial), and International Business Machines (IBM, Financial) that are also betting their future on cloud technology.
The company had logged revenues of $9.6 billion during the second quarter of 2015, beating both consensus estimates and Oracle’s own guidance. The enterprise software giant’s non-GAAP EPS for the second quarter of fiscal 2015 stood at 69 cents a share. The company had attributed its estimate-beating performance to the massive 47% year-over-year growth of its cloud business. While Oracle’s hardware systems logged 4% growth in revenues beating expectations of a negative growth, its on-premise software licenses business grew 6% year-over-year. The company had projected revenue growth of between 4%-8% year over year for Q3 2015, while its non-GAAP EPS was projected to be in the 69-74 cents a share range on a constant currency basis.
New Product Releases, Customer Acquisitions Signal Positive Growth
Over the last two quarters, Oracle has witnessed more than 50% year-over-year growth in its cloud business, with its Oracle Fusion achieving triple-digit growth in revenue and bookings. The company has maintained its steady pace of acquiring new customers through new product releases during the third quarter. More importantly, the company stressed that the new customer acquisitions were not merely a case of existing on-premise software users switching to cloud products, but net new subscribers, allaying fears that Oracle’s aggressive strategies for the cloud business would hurt revenues from its on-premise software division. Oracle’s claim is substantiated by the fact that sale of its on-premise software licenses resulted in a 6% revenue growth during the second quarter.
Oracle’s guidance for the third quarter included non-GAAP revenue growth expectation of 30%-34% for its Software-as-a-Service (SaaS) and Platform-as-a-Service (PaaS) businesses, while revenue from its Infrastructure-as-a-Service (IaaS) was projected to grow by 29%-33%. The company has since seen all three segments grow at a brisk pace, with Oracle expecting new annual subscriptions at its SaaS and Paas businesses overshooting the $1 billion mark during fiscal 2015.
Hardware Business on Road to Recovery
Oracle has seen its hardware business declining steadily since fiscal 2011. However, the company logged a 4% year-over-year surprise growth in the second quarter of fiscal 2015, owing to the success of its recent engineering systems offerings. The company also triggered a price-war with drastic price-cuts on its new products during the end of the third quarter, signalling its serious intent to compete aggressively in the servers market. For instance, Oracle unveiled considerable faster servers at roughly half the price of comparable machines sold by rivals such as Cisco Systems Inc. Oracle’s emphasis on its steady double-digit growth in revenues from the servers segment and the company’s aggressive pricing strategy for the segment indicates that the future of the company’s hardware business is pinned on its servers segment.
Final Thoughts
With Oracle having posted robust results for the second quarter due to rapid expansion in the cloud computing segment, investors are looking forward to see Oracle continue on its successful streak. Moreover, investors would be keenly watching the performance of the company’s hardware business, which recently initiated an aggressive pricing strategy for its servers division. Although investors will hope for Oracle to post earnings better than the consensus estimate of 68 cents a share, experts opine that the company needs to report earnings closer to the higher end of its guidance at 73 cents a share on revenue above $9.65 billion to push the stock above the current resistance of $44 a share. The Oracle stock carries a price estimate of $47 a share, which is around 10% higher than its current price, and a ‘buy’ guidance.
