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Why Is Oracle (ORCL) Up 5.5% Since Last Earnings Report?

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It has been about a month since the last earnings report for Oracle (ORCL - Free Report) . Shares have added about 5.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Oracle due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Oracle Tops Q2 Earnings Estimates, Revenues In Line

Oracle Corporation reported modest second-quarter fiscal 2019 results. Non-GAAP earnings of 80 cents per share surpassed the Zacks Consensus Estimate of 78 cents. Revenues of $9.562 billion were almost in line with the Zacks Consensus Estimate of $9.535 billion.

Earnings increased approximately 16% from the year-ago quarter (up 19% in cc). Further, revenues were almost flat year over year and increased 2% in cc. This was towards the higher range of management’s guidance of 0-2%.

Structural Changes

The company had adopted a new Accounting Standards Codification ("ASC") 606 using full retrospective method in the fourth quarter.

In first-quarter fiscal 2019, Oracle launched a bring-your-own-license (BYOL) program which enables customers to shift their existing on-premise licenses to the Oracle Cloud. In doing so, Oracle claims that licenses covered by the BYOL program can neither be defined as on-premise nor as cloud.

Consequently, the company started reporting its new software licenses under its new Cloud license and on-premise license segment. Further, the company merged its Cloud SaaS, Cloud PaaS and IaaS along with its software license updates and product support into Cloud services and license support.

Cloud Drove the Top Line

Oracle’s top-line growth benefited from the ongoing cloud-based momentum. Total cloud services and license support revenues (69% of total revenues) for the quarter advanced 3% (5% in constant currency) to $6.64 billion.

However, total cloud license and on-premise license decreased 9% year over year (6% in constant currency) to $1.22 billion.

Management announced that Fusion ERP and Fusion HCM is more than $2.6 billion in the 12 months period. Fusion ERP was up 44% for the full year. NetSuite ERP revenue increased 25%.

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’s tech ecosystem is $21 billion in the past 12 months. BYOL remains strong fueled by new database license and support revenues, both of which were up low-single digits.

Total hardware revenues were down 5% (3% in cc) year over year and came in at $$891 million. Services revenues decreased 5% (2% in cc) to $817 million.

Operating Details

Non-GAAP operating expenses, as percentage of revenues, increased 70 basis points (bps) to 57.3%.

As a result, non-GAAP operating income during the reported quarter came in at $4.08 billion, down 2% from last year. Non-GAAP operating margin was flat year over year and came in at 43%.

Balance Sheet & Cash Flow

As of Nov 30, 2018, Oracle had cash & cash equivalents and marketable securities of $49.39 billion, down from $60.1 billion sequentially. Operating cash flow for the trailing four quarters was $15.2 billion, while free cash flow was $13.8 billion.

Share Repurchases & Dividends Continue

Oracle repurchased around 203 million shares worth $10 billion during the reported quarter. Over the last 12 months, the company repurchased 602 million shares. The company also declared a quarterly dividend of 19 cents per share, payable on Jan 30, 2019.

Guidance

For the third quarter of 2019, total revenues are anticipated to grow in the range of 2-4% in cc.

Non-GAAP earnings are anticipated to be between 83 cents and 85 cents for the third quarter, while in constant currency non-GAAP earnings is expected to be in the range of 86 cents and 88 cents. 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, Oracle has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Oracle has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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