Oracle (ORCL) Q2 2023 Earnings: What to Expect

Shares of Oracle (ORCL) have been a pleasant surprise amid massive turbulence and volatility among software stocks, rising more than 15% in the past six months, besting the 2% decline in the S&P 500 index.

Amid the year-long punishment in software stocks, Oracle has been a relatively out-performer. Over the past thirty days, the stock has gained almost 6%, slightly ahead of the 5% rise in the S&P 500 index. The company is now seemingly being rewarded for its consistent execution, stemming from the past three quarters. Investors want to know whether the gains can continue. The database and cloud giant Oracle will report second quarter fiscal 2023 earnings results after the closing bell Monday. There’s a good chance that the out-performance will continue, according to analyst Dan Ives of Wedbush Securities.

Oracle, along with Alphabet (GOOG , GOOGL), is reportedly in the mix to secure $9 billion cloud deal with the Pentagon’s Joint Warfighter Cloud Capability contract considerations, Ives wrote. The contract, which would serve as a backbone for modern war operations, is intended to offer access to unclassified, secret and top-secret data to military personnel worldwide. Ives noted that "both vendors [Oracle and Google| did well in cloud bake offs and have significantly raised their cloud and growth profile over the past few years inside and outside of the Beltway.”

For Oracle, not only would an award assert the company's place as a legitimate cloud vendor, it would solidify its software-as-a-service segment which continues to grow at exceptionally high rates, while its cloud infrastructure and the autonomous database revenues grew at an even faster pace. Currently seen as a transformation play based on its business transition towards a cloud subscription-based model, Oracle on Monday must demonstrate how it can become a future global cloud leader.

In the three months that ended October, Wall Street expects Oracle to earn $1.18 per share on revenue of $12.04 billion. This compares to the year-ago quarter when earnings came to $1.21 per share on revenue of $10.36 billion. For the full year, ending May 2023, earnings are projected to rise 1.5% year over year to $4.95 per share, while full-year revenue of $49.40 billion would rise 16.4% year over year.

There is still the question as to whether the market has truly factored in the company’s new competitive positioning. The latter is due to what is perceived to be an attractive stock price, suggesting that the stock remains under-appreciated. Despite the fact that the company has improved its profit margins, while its revenue growth continue to accelerate, the shares appear unloved. This makes the story even more compelling given the fact that the global cloud computing market size is forecasted to grow some 16% in the next four years, rising from $445 billion in 2021 to $947.3 billion by 2026.

Oracle has already begun to carve out an increased portion of this pie, evidenced by its first quarter report, during which revenue came in at $11.45 billion, rising 17.65% year over year and topping estimates by $55.7 million. Of that total, $8.42 billion came from cloud services and license support, which rose 14% from a year ago, while infrastructure revenue soared 58%. The company earned adjusted EPS of $1.03 per share, topping estimates of 98 cents per share.

Now in the third year of its multi-year transition to a cloud subscription-based model, the database specialist is finally being recognized for its strong execution and increased cloud market share. On Monday to maintain its momentum, Oracle must show revenue growth acceleration and margin expansion.