Oracle Earnings Preview: Struggling With Cloud, But Buyback Keeps Floor Under Stock

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Summary

Oracle’s Cloud initiative has really struggled, as the software giant struggles to refashion the business model.

The share repurchase plan – which is enormous – has kept a floor under the stock.

Revenue growth estimates for the next 3-5 years looking for 2%-3% growth, well down from Oracle’s halcyon days.

Oracle is much like a number of 1990s growth giants, i.e. it’s still struggling to transform the business model into the next generational software platform and it isn’t easily done.

Oracle (ORCL), the database software giant that has really struggled to get its Cloud product growing steadily, reports their fiscal Q4 (May ’19) quarter, next Wednesday, June 19th, 2019, after the closing bell.

Street consensus (per IBES by Refinitiv) is expecting $1.07 in earnings per share on $10.93 billion in revenue for expected year-over-year (y/y) growth of 9% and -3% respectively.

 

 

Oracle’s revenue growth has been flat (i.e low-single digit to slightly negative) for the last year as the expected growth in SaaS (software-as-a-service) and PaaS (platform-as-a-service) has not materialized, which led the software giant to change their disclosure around the Cloud segment a year ago, which is always a red flag.

The three components to the Oracle Cloud segment (and admittedly I am no techie and break out in a sweat when I pump gas), SaaS, PaaS and IaaS (infrastructure-as-a-service) were showing some growth, albeit lumpy and inconsistent, but like a number of the tech giants from the 1980s and 1990s, the decline in Oracle’s legacy database business – which in the Oracle earnings report is listed as “new software licenses” and was still 20% of total revenue, was eroding at a rate of 5%-7% per year. “New Licenses” were as much as 35% of Oracle’s total revenue as of May 2013 but had fallen to 20% as of last May 18. (Because of the rather circumspect change in disclosure around the Cloud revenue, I stopped breaking out the numbers on the spreadsheet, since the new data had no historical comparison.)

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