After the closing bell yesterday, software giant Oracle (ORCL - Free Report) reported fiscal second-quarter 2018 results. While the company beat the Zacks Consensus Estimate for revenues and earnings, it disappointed investors with a bleak outlook.
Oracle Q2 Earnings in Focus
Earnings per share came in at 70 cents, a couple of cents ahead of the Zacks Consensus Estimate and up 14% year over year. Revenues increased 6% year over year to $9.63 billion and were above the estimated $9.55 billion.
The company’s long process of shifting to the Web-based cloud computing business is now paying off more than offsetting the decline in the legacy business. Cloud software platform sales climbed 44% from the year-ago quarter to $1.52 billion and accounted for 16% of total revenues. However, it is well below Reuters expectation of $1.56 billion (see: all the Technology ETFs here).
For the fiscal third quarter, the world’s largest database software maker expects total revenues to grow 2-4% on a constant currency basis, below the Zacks Consensus Estimate of 4.23% growth. This is because cloud sales are expected to increase 21-25%, lower than growth of 44% in the recently reported quarter and analyst expectation of 42% increase, suggesting a slowdown in the soaring cloud business. Further, the company expects earnings per share of 68-70 cents, which is also below the Zacks Consensus Estimate of 72 cents, reflecting some concerns in the company’s future growth.
The disappointing outlook pushed shares of Oracle down as much as nearly 7% in aftermarket trade with elevated volumes. Currently, the stock has a Zacks Rank #3 (Hold) and a dismal Industry Rank in the bottom 35%. The Value and Growth Style Score is impressive at B and A, respectively.
ETFs in Focus
ETFs with the highest allocation to this software giant look to be big movers this week and in the next, as investors digest its scores and views. They should closely monitor the movement in these funds and grab any opportunity from a surge in the price of ORCL or avoid if the stocks drags them down:
iShares North American Tech-Software ETF (IGV - Free Report)
This ETF provides exposure to the software segment of the broader U.S. technology space by tracking the S&P North American Technology-Software Index. The fund holds a basket of 57 securities with Oracle taking the fourth spot at 7.8% of total assets. It is popular with AUM of $1.1 billion and volume is good as it exchanges nearly 139,000 shares a day. The product charges 48 bps in annual fees and has a Zacks ETF Rank #2 (Buy) with a High risk outlook (read: Tech ETFs & Stocks Tumble: Is it a Solid Entry Point?).
First Trust Cloud Computing ETF (SKYY - Free Report)
This fund provides exposure to cloud computing securities by tracking the ISE Cloud Computing Index. Holding about 30 stocks in the basket, Oracles takes the twelfth spot at 4.3% of assets. Software firms dominate this ETF accounting for 40.1% share while Internet software services (14.4%) and communication equipment (13.4%) round off the next two sectors. The product has been able to manage $1.3 billion in its asset base while sees a good volume of about 138,000 shares a day. It has 0.60% in expense ratio and a Zacks ETF Rank #2 with a Medium risk outlook (read: Why Cloud ETFs Could Soar Ahead).
First Trust NASDAQ Technology Dividend Index Fund (TDIV - Free Report)
This fund provides exposure to dividend payers within the technology sector by tracking the Nasdaq Technology Dividend Index. The product has amassed about $806.7 million in its asset base while trades in volume of around 60,000 shares per day. The ETF charges 50 bps in annual fees. In total, the fund holds about 95 securities in its basket. Of these firms, ORCL takes the eight position, making up roughly 3.6% of the assets. In terms of industrial exposure, the fund is widely spread out across semiconductor and semiconductor equipment, software, diversified telecommunication services, technology hardware, storage & peripherals, and communication equipment.
John Hancock Multifactor Technology ETF (JHMT - Free Report)
This fund focuses on the time-tested multifactor approach that emphasizes factors (smaller cap, lower relative price, and higher profitability) that academic research has linked to higher expected return. It follows the John Hancock Dimensional Technology Index, holding 123 stocks. Of these, Oracle occupies the seventh position with 3% allocation. Software and semiconductors make up for the top two sectors in the fund’s portfolio with over 24% share each while Internet software & services, and technology hardware, storage & peripherals round off the next two spots. The fund has accumulated $63.8 million in AUM while charging 50 bps in fees per year. Volume is light at around 7,000 shares a day. JHMT has a Zacks ETF Rank #2 with a High risk outlook.
iShares Dow Jones US Technology ETF (IYW - Free Report)
This ETF tracks the Dow Jones US Technology Index, giving investors exposure to 141 technology stocks. The fund has AUM of $4.1 billion while charging 44 bps in fees and expenses. Volume is good as it exchanges nearly 190,000 shares in hand a day. Oracle occupies the eight position in the basket with 2.9% of assets. In terms of industrial exposure, software and services makes up for 53% share, followed by technology hardware & equipment (26.6%). The fund has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook (read: Q3 Earnings Effect: 5 Hottest ETF Charts).
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