Oracle (ORCL, Financial) is scheduled to report its first quarter earnings results on Sept. 15 and the company expects to report adjusted earnings of 58 cents per share and revenues of $8.7 billion. Oracle’s revenue growth has been flat since 2014 and the company showed some signs of recovery in the fourth quarter of the last fiscal, reporting 0% growth.
Oracle’s traditional business lines have been declining over the years due to the growth of cloud adoption. Except for cloud-based products, Oracle’s revenues declined in all the segments during 2016, and that is not going to change moving forward. But the good news for Oracle is their cloud-based Software-as-a-Service and Platform-as-a-Service revenues grew 49% last year, accounting for 6% of the company’s overall revenues.
Oracle is expecting its SaaS and PaaS revenue growth to continue in 2017, guiding for 75% to 80% growth in the first quarter. More importantly, the company expects to achieve more than 65% growth from this segment during fiscal 2017. The market is indeed ripe with opportunity, and if the NetSuite (N, Financial) acquisition goes through as per plan, then Oracle shouldn't have any trouble Ă‚ reaching, or even exceeding, its target in 2017.
“Even with that said for Q1, I’m raising my earlier guidance for SaaS and PaaS revenue, which we now expect to grow 75% to 80%. And this guidance reflects a bit of additional revenue from acquisitions and higher guidance for the organic business.
Software and cloud revenues, including SaaS/PaaS and IaaS, new software license and software and support is expected to grow 5% to 7%. Total revenue growth is expected to range from 2% to 5%”
- Oracle Q4-16 Earnings Call
The biggest trouble for Oracle’s stock, which has been trading in a tight range, is that new, growing revenue streams are barely able to make up for losses in other segments. Despite registering a near 50% growth from the SaaS/PaaS segment in 2016, Oracle was only able to report 0% growth for the fiscal. It is not really a surprise that Oracle took a $9.3 billion bet to snap NetSuite off the market. They need additional revenue drivers to compensate for declining hardware and software license revenues, and the inflection point could be a moving target depending on how their traditional business lines perform.
Oracle has guided for 2% to 5% revenue growth for the quarter. Wall Street is expecting them to report $8.7 billion in sales for the quarter compared to $8.5 billion last year, a growth of more than 2%. The report on Sept. 15 will tell us whether or not Oracle was able to make the grade as they move into fiscal 2017.
Disclosure: I have no positions in any of the stocks mentioned above and no intention to initiate a position in the next 72 hours.
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