Oracle Earnings in Focus
Earnings per share came in at 65 cents, falling short of the Zacks Consensus Estimate by 2 cents. Earnings however increased a penny from the year-ago quarter. Revenues rose nearly 4% year over year to $9.31 billion but fell shy of our estimate of $9.36 billion (read: Top Ranked Technology ETF in Focus: QTEC).
The company is losing out to its rivals like Salesforce.com Inc. (NYSE: CRM) and Amazon.com (NASDAQ: AMZN) that offer remote or cloud services over the Internet at lower prices. This is because Oracle generally provides traditional services by licensing and servicing software installed locally on individual computers.
Owing to the weak results, ORCL shares tumbled more than 5% in after hour trading yesterday but slightly recovered at the close and were finally down 3.5%. This trend might continue in the short term given sluggish IT spending, tough competition and the company's evolution.
The stock currently has a Zacks Rank #4 (Sell). Though things appear to be difficult for the company in the short term, long term prospects are bright.
Long Term Outlook
Recovering hardware operations and a growing cloud applications business are fueling the company's growth. This is especially true as the acquisition of Sun Microsystem four years ago and cloud-based big data firm BlueKai at the tail end of its fiscal third quarter are expected to bear fruits in the coming years, ensuring long-term growth (read: Merger Arbitrage ETFs in Focus on Rising Deal Volume).
Further, the company's low cost engineered systems (Oracle Virtual Compute Appliance), higher subscription revenues and improving sales force would further boost its long term growth prospects. Moreover, ORCL is likely to benefit from the ongoing transition to the new generation of cloud computing and Big Data.
With that being said, the world's largest database software maker expects revenues to grow in the range of 3–7% (in U.S. dollar terms) for the fiscal fourth quarter buoyed by 0–10% growth in both new software license and cloud subscription revenue as well as hardware business. It also projects earnings per share in the range of 92–99 cents, which is above the Zacks Consensus Estimate of 91 cents.
ETF Angle
Long-term investors looking to take advantage of the sliding price of ORCL could make a concentrated bet on the following three ETFs. These products have the largest allocation to the software giant and are in focus in the coming days (see: all the Technology ETFs here).
iShares S&P North American Technology-Software Index Fund (IGV)
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 small basket of 61 securities with Oracle taking the top spot at 8.67% of total assets.
The fund is quite popular with $1.3 billion in AUM while volume is moderate as it exchanges nearly 93,000 shares a day. The product charges 48 bps in fees and expenses and is up about 5.6% in the year-to-date timeframe. IGV has a Zacks ETF Rank of 2 or ‘Buy' rating with a High risk outlook.
Market Vectors Wide Moat ETF (MOAT)
This ETF follows the Morningstar Wide Moat Focus Index and provides equal-weighted exposure to 21 U.S. securities that have a unique sustainable competitive advantage in their respective industries. Here, Oracle occupies the sixth position in the basket, accounting for 5.40% of total assets (read: 3 ETFs You Can Love Forever).
The product is pretty spread out across various sectors with information technology, healthcare and energy taking the double-digit allocation. The fund has accumulated $614.7 million in its asset base and sees a good volume of more than 142,000 shares a day. Its expense ratio comes in at 0.49%. The fund has added nearly 0.2% so far this year.
iShares Dow Jones US Technology ETF (IYW)
This is easily the most popular ETF in the broader tech space with AUM of nearly $3.8 billion and average daily volume of roughly 386,000 shares. The product tracks the Dow Jones US Technology Index, giving investors exposure to 142 U.S. equity stocks while charging 45 bps in fees and expenses (read: Guide to China Technology ETFs).
Oracle takes the fifth spot in the basket with 4.49% share. The product is almost evenly distributed between software and computer services, and hardware and equipment. IYW returned 3.7% year-to-date and has a Zacks Rank of 3 or ‘Hold' rating with a High risk outlook.
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