This Tech Giant Kicks Off Q1 Earnings Season Tomorrow, But Shares Are Falling Ahead Of The Release

(Photo Credit: Chang Ju Wu)

Software Giant Oracle (ORCL) will be releasing its Fiscal Q1 2016 earnings Wednesday after market close. Wall street analysts are expecting an EPS of $0.52 and revenue of $8.511 billion. On the other hand, the Estimize consensus is estimating an EPS of $0.53 and revenue of $8.519 Billion. Over the past two quarters, Oracle’s revenue figures have unperformed analyst projections. As of September 15th, Oracle is currently trading at $37.76.

Last quarter, Oracle posted lower than expected earnings and revenues, which was blamed on changing foreign exchange rates. First quarter reports are historically weaker in comparison to later quarters, however, there may not be reason to worry about the California based firm in the long run. Oracle has made considerable improvements to its cloud business.

Currently, the cloud consists of 5% of total revenue, growing sales from 30% to 35 % YoY in the last year. The software giant must sustain continual growth in its cloud business in order to have any credibility or major threat to other cloud vendors. Additionally, Oracle’s bread and butter licensing and product support business has maintained its strength with a large chunk of the revenue coming from these. But competition from the likes of Microsoft (MSFT) and IBM is something that must be monitored closely, especially considering that Oracle’s cloud-based subscription option will only reflect success in the coming years.

ORCL data by YCharts

A common issue with Oracle, and what may be a significant factor in preventing individuals from  purchasing shares, is the overall performance of the stock. In December of 2014, shares reached roughly $48. Since then, there has been a 20% dip. However, with roughly $14 billion in operating cash flow, the Larry Ellison led firm has positioned itself to potentially buyback stock and issue higher dividends. This is a bargain and low-risk, high-reward type situation as Oracle currently trades at 17x its earnings (3 points lower than the S&P 500).