Tech bellwether Oracle (ORCL – Analyst Report) reported mixed first-quarter fiscal 2016 results after the closing bell on Wednesday. The company beat the Zacks Consensus Estimate for earnings but missed on revenues due to negative currency translations and persistent weakness in traditional software sales.
Oracle Q1 Earnings in Focus
Earnings per share came in at 49 cents (accounting for stock-based compensation), a penny ahead of the Zacks Consensus Estimate. Revenues declined 2% year over year to $8.45 billion and were below our $8.57 billion estimate.
While the company’s long process of shifting to the Web-based cloud computing business is paying off, the gains are unlikely to make up for the declines in the software business. Additionally, a strong dollar is still posing challenges to the company’s performance. Excluding the impact of unfavorable currency rates, revenues would have grown 7% (read: What Lies Ahead for Dollar ETFs?).
Cloud software platform sales climbed 34% from the year-ago quarter and accounted for 5% of total revenue. Oracle will continue to benefit from the new generation of cloud computing and Big Data and steal market share from Salesforce.com Inc. (CRM – Analyst Report), the only major software company competing in the cloud segment. This is especially true as the company expects the profit margin of cloud-based revenues to likely expand to 80% from the current 40% over the next two years.
For the fiscal second quarter, the world’s largest database software maker expects revenues to be down 2% to up 1% in constant currency and earnings per share between 63 cents and 66 cents. The midpoint of the earnings guidance is well above the Zacks Consensus Estimate of 48 cents. Currency headwind is expected to impact 6% growth in revenues and dilute 5 cents in earnings per share.
Based on the revenue miss, Oracle shares tumbled as much as 2.8% in after-hours trading. The sluggish trading is expected to continue in the days ahead. Given this, ETFs with the highest allocation to this software giant will be in focus in the days ahead. Investors should closely monitor the movement in these funds and avoid these if the stock drags them down:
iShares S&P North American Technology-Software Index Fund ((IGV – ETF report))
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 basket of 62 securities with Oracle taking the fourth spot at 7.7% of total assets. It is quite popular with AUM of over $864.5 million while volume is moderate as it exchanges nearly 147,000 shares a day.
The product charges 48 bps in annual fees and has gained about 5% so far this year. IGV has a Zacks ETF Rank of 3 or ‘Hold’ rating with a High risk outlook (read: Is the Nightmare Over for Tech ETFs Post Market Crash?).
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