Analysts Thoughts On Oracle Ahead Of Q3 Results

Oracle Corporation ORCL is set to report its third-quarter financial results on Tuesday after the market closes.

The Street consensus estimate calls for a drop of 8.8 percent in earnings and 2.3 percent in sales. Analysts, on average, expect earnings of $0.62 a share on revenue of $9.12 billion. Oracle expects adjusted per-share earnings between $0.63 and $0.66. In the same period last year, the company earned $0.68 a share on revenue of $9.33 billion.

In the past four quarters, Oracle's earnings have managed to top Street view twice (Q1 and Q2), while Q4 saw a miss by 9.3 percent and Q3 earnings came in line.

Investors will closely watch how the cloud business is performing as it is considered to be the next leg of growth for Oracle as its legacy businesses are struggling to generate sales. Oracle is steadily growing its cloud business, which currently accounts for only 6 percent of Oracle's total sales.

In the second quarter, total cloud revenues grew 26 percent to $649 million against hardware and service businesses that recorded a sales drop of 16 percent and 8 percent, respectively.

Still, Oracle has a long way to go to effectively compete with market leaders -- salesforce.com, inc. CRM and Workday Inc WDAY. Both investors and analysts alike will be looking for the company's comments on the cloud business and bookings growth.

Oracle sees SaaS and PaaS revenue growth rate to accelerate to nearly 50 percent in the third quarter and close to 60 percent in the fourth quarter.

"We are still on-target to sell and book more than $1.5 billion of new SaaS and PaaS business this fiscal year," said Oracle Executive Chairman and CTO Larry Ellison said in December. "That is considerably more SaaS and PaaS new business than any other cloud services provider including salesforce.com."

What Does The Street Think?

Jack Andrews of DA Davidson projects third-quarter total cloud revenue growth of 36 percent to $721 million, driven by 50 percent Cloud SaaS & PaaS growth to $563 million and 2 percent Cloud IaaS growth to $158 million.

"Strong cloud bookings likely to continue. We believe a significant acceleration in SaaS and PaaS revenue over the next few quarters is likely, as aggressive discounting tactics associated with early deals roll off with renewals," Andrews wrote in a note to clients.

Andrews reiterated his Buy rating and $52 price target on the stock.

On the other hand, JMP Securities analyst Patrick Walravens said while the company is seeing strong growth in its SaaS cloud applications, demand is shifting away from its database, middleware, and hardware businesses as enterprises move workloads out of corporate data centers and into cloud infrastructure vendors like Amazon Web Services (AWS) and Microsoft Azure. The analyst maintained his Market Underperform rating and $31 price target on Oracle.