Oracle (ORCL) to Report Q2 Earnings: What's in the Offing?

Oracle ORCL is slated to release second-quarter fiscal 2019 results on Dec 17. Notably, Oracle beat estimates in the trailing four quarters, with average positive surprise of 6.9%.

The company reported mixed first-quarter fiscal 2019 results. Non-GAAP earnings of 71 cents per share surpassed the Zacks Consensus Estimate of 68 cents. However, revenues of $9.2 billion marginally lagged the Zacks Consensus Estimate of $9.28 billion.

Earnings increased approximately 16.4% from the year-ago quarter (up 19% in cc). Further, revenues increased 1% year over year and 2% on a constant-currency (cc) basis, which was within management's guidance of 1-3%.

Oracle's shares have declined 7.2% in the past year, against the industry 's growth of 17.5%.

Expect What

For the second quarter of 2019, total revenues are anticipated to grow 0-2% at cc. The Zacks Consensus Estimate for revenues is pegged at $9.53 billion.

Non-GAAP earnings are anticipated to be between 77 cents and 79 cents for the second quarter, while the same at cc is expected to be 78-80 cents. The Zacks Consensus Estimate is pegged at 78 cents per share.

So, let's see how things are shaping up prior to this announcement.

Factors Likely to Impact Q2 Results

Oracle recently enhanced Oracle Risk Management Cloud with new Advanced Access Controls, an artificial intelligence ("AI") based risk management and security solution. The new offering attempts to enhance the company's Enterprise Resource Planning ("ERP") Cloud capabilities.

The company introduced a new Software-as-a-Service (SaaS) based application named Oracle Public Sector Community Development. We believe that Oracle's growing focus on cloud computing and incorporating AI techniques across its SaaS applications will boost its market share, going ahead.

Oracle also released Java Special Edition (SE) version 11 or Java Development Kit (JDK) 11.

The company is anticipated to gain investors' confidence with the latest release of Java SE 11. Java has been a favorite among software developers and application builders for quite a long time. We believe the new LTS release of Java 11, loaded with robust features, positions Oracle well to sustain the dominance it enjoys in the software programming market.

Further, the next-generation autonomous database launched by Oracle, which is supported by machine learning, is now available. This is a key catalyst for the company. Management believes that the new database will improve Oracle's competitive position in the cloud, against Amazon Web Services ("AWS").

The company is benefiting from strong adoption of its cloud-based solutions. We believe that Oracle's growing cloud market share will continue to drive top-line growth. Further, partnership with the likes of Accenture ACN is helping the company rapidly expand its cloud-base clientele.

Despite expanding its foothold in the cloud space, the presence of already established players like Amazon and Microsoft in both the PaaS and IaaS may remain a potential headwind.

Notably, Oracle no longer intends to break out its cloud revenues and does not provide any guidance on SaaS, Cloud PaaS and IaaS. This move is likely to aggravate investors' concern regarding the company's outlook.

Moreover, stiff competition in the cloud is expected to hurt margins and will make revenue growth difficult, going forward. Further, large acquisitions can negatively impact the company's balance sheet in the form of a high level of goodwill and intangible assets. Further, lawsuits and currency volatility, owing to its transition from licensing to cloud, are likely to affect Oracle.

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP . However, stocks carrying a Zacks Rank #4 (Sell) or 5 (Strong Sell) are best avoided. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Oracle has an Earnings ESP of 0.00% and a Zacks Rank #4.

Stocks with a Favorable Combination

Here are two companies, which, per our model, have the right combination of elements to post an earnings beat this quarter:

Ciena Corporation CIEN has an Earnings ESP of +0.75% and a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here.

Micron Technology, Inc. MU has an Earnings ESP of +1.31% and a Zacks Rank #3.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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