Software giant Oracle (ORCL) will report first quarter fiscal 2022 earnings results after the closing bell Monday. Driven by renewed cloud interest, Oracle shares have surged 35% over the past six months, more than doubling both the 17% rise in the S&P 500 index and the 15% gain in the Technology Select Sector SPDR ETF (XLK) during that span.
Now up 30% year to date and trading near 52-week highs, Oracle stock sports a premium to its historical valuation. Seen as a transformation play based on its business transition towards a cloud subscription-based model, Oracle's cloud strategy is highly focused on customer retention and migrating existing on-premises customers to the cloud. And whether the company can compete effectively with incumbents such as Salesforce (CRM), Workday (WDAY) and Amazon (AMZN) remains a key factor in assessing the stock’s premium potential.
The company must continue to demonstrate that its fundamentals can sustain its current growth rate — similar to what Microsoft (MSFT) did a decade ago. As such, while Oracle's quarterly profits have topped consensus estimates consistently, the investors on Thursday will be more interested in growth in each key cloud areas such as Oracle Cloud Infrastructure segment and the company’s public cloud service will be a key area of focus. The company’s Autonomous Database solution, which has shown modest success in recent quarters, will be another area of interest to assess its long-term growth capabilities.
In the three months that ended August, Wall Street expects Oracle to earn 97 cents per share on revenue of $9.78 billion. This compares to the year-ago quarter when earnings came to 93 cents per share on revenue of $9.37 billion. For the full year, ending May 2022, earnings are projected to decline 1.5% year over year to $4.60 per share, down from $4.67 a year ago, while full-year revenue of $42.27 billion would rise 4.4% year over year.
The projected revenue decline of 4% for the quarter and the downbeat 4% growth for the year pale in comparison to the numbers delivered by Oracle’s aforementioned cloud rivals. Now in its third year of its transformation, the company’s slow cloud transition has weighed on its revenue growth over the past several quarters. But the transition is now reaching fruition. The company not only beat Q4 revenue estimates, Oracle also achieved double-digit growth in bookings, while adjusted EPS handily surpassed its own guidance.
Fourth quarter revenues of $11.23 billion beat consensus estimates by $191 million. Likewise, adjusted EPS of $1.54 was a solid 21 cents above consensus. The company’s Q4 infrastructure subscription revenues - mainly database — grew by 6% to $4.3 billion. Of that total, cloud services have now reached more than 50%, or $2.3 billion. Oracle Cloud Infrastructure (OCI) revenues were also impressive, surging 50%. The company’s OCI consumption revenues, a strong indicator of growth, expanded by 103%. Notably, autonomous database revenues surged up 56% year over year.
On Thursday investors will want to see more growth acceleration in these areas, along with meaningful evidence that Oracle can become a cloud powerhouse. In other words, for the stock to keep rising, aside a top- and bottom-line beat Thursday, Oracle guidance for fiscal 2022 must suggest it is ready to stake a legitimate claim to the cloud market.