Oracle Earnings: What to Watch

By Jay Greene Features Dow Jones Newswires

Oracle Corp. is set to report financial results for its fiscal fourth quarter after the close of trading Wednesday in New York. Here's what you need to know:

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EARNINGS FORECAST: Analysts surveyed by S&P Global Market Intelligence expect Oracle to report adjusted profit of 78 cents a share for the quarter that ended in May, down from 81 cents a year earlier. The company reported 66 cents a share in net a year ago.

REVENUE FORECAST: Analysts expect Oracle to post revenue of $10.45 billion, down from $10.59 billion a year earlier.

WHAT TO WATCH:

-- CLOUD INFRASTRUCTURE: Oracle has made significant progress shifting its applications business from licensed software sales to subscription services delivered on-demand. Its so-called software-as-a-service and platform-as-a-service businesses, which Oracle reports combined, grew 73% in the fiscal third quarter. Oracle also wants to compete in the infrastructure-as-a-service market dominated by Amazon.com Inc., Microsoft Corp. and Alphabet Inc.'s Google. In that market, its modest growth -- just 17% in the fiscal third quarter -- has been swamped by larger gains from its biggest rival, Amazon, whose web business grew 43% in the most recent quarter. The new quarterly data will show if Oracle has been able to make any headway.

-- CAPEX WATCH: Amazon, Microsoft and Google spent a combined $31.54 billion in 2016 in capital expenditures and capital leases, much of it on data centers to deliver cloud-infrastructure services. Oracle's capital spending in the same window was just $1.7 billion. The company has said it doesn't believe it needs to spend as much as rivals to catch up, arguing its technology is superior. That said, Stifel Nicolaus & Co. analyst Brad Reback wrote in a research note that capital spending, as well as operating expenses, will need to "expand meaningfully should management be serious" about creating a global cloud-infrastructure business.

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-- REVENUE FLATLINING: If analysts' forecasts are right, Oracle's annual revenue will climb 1% to $37.40 billion -- the third consecutive year in which Oracle hasn't posted meaningful growth. In the previous fiscal year, Oracle's revenue fell 3%; and the year before that, it slipped than 1%. The flatlining revenue comes as Oracle transitions from selling software licenses to one that sells cloud-computing subscriptions.

-- NEW METRICS: Analysts at Morgan Stanley & Co., RBC Capital Markets and Stifel Nicolaus & Co., among others, all expect Oracle to announce new financial metrics for the coming fiscal year. RBC's Ross MacMillan wrote in a research note that he expects Oracle to create two segments under software revenue -- one for applications and the other for database and technology. The anticipated changes, he wrote, will provide insight into growth trends in each area, though he cautioned they "will remove clarity" as businesses get mixed together that have varying gross margins.

Write to Jay Greene at Jay.Greene@wsj.com

(END) Dow Jones Newswires

June 21, 2017 08:14 ET (12:14 GMT)