Oracle Earnings Preview: Still All About the Cloud

Tech giant Oracle reports fiscal second-quarter earnings after the closing bell on Monday, December 17. Here’s a look at what might be expected.

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4 min read

Like many older tech companies, Oracle (ORCL) has been in the process of transitioning away from its legacy database business towards a subscription-based cloud business for some time. The next update on ORCL’s cloud efforts comes when it reports fiscal second-quarter earnings after the close on Monday, Dec. 17.

For the quarter, ORCL is expected to report adjusted EPS of $0.78 on revenue of $9.52 billion, according to third-party analyst estimates. In the same quarter last year, adjusted EPS came in at $0.70 on revenue of $9.63 billion. Similar to recent quarters, a strong U.S. dollar is expected to pressure results.

Analysts have indicated they’re primarily focused on the company’s cloud division, which has delivered an underwhelming performance compared to expectations in recent quarters. Over the past year, revenue growth in the division has decelerated from high-single digits to low-single digits. 

For fiscal Q2, analysts are forecasting $6.63 billion in revenue from cloud services and license support. When ORCL reported fiscal Q1 results, that division generated $6.61 billion in revenue, a 3% year-over-year increase. 

Outside of the division’s performance, the recent departure of 22-year ORCL veteran Thomas Kurian, who was in charge of the company’s product development and a key figure in its cloud efforts, was another red flag for many analysts. Originally, the company had said he was taking extended time off. Then, not too long after, Kurian left and joined Alphabet (GOOG, GOOGL) as the head of Google Cloud. 

While cloud performance is likely to draw much of the attention, ORCL’s other divisions will be important too as they’ve been drivers of the company’s top and bottom-line beats and misses. In fiscal Q1, ORCL reported $867 million in revenue from cloud license and on-premise license, $904 million from hardware, and $813 million from services. Those segments declined year-over-year by 3%, 4%, and 5%, respectively. 


Up and Down. Since early 2017, ORCL has been stuck mostly between the $43 and $53 level. A weaker-than-expected report in June sent shares quickly down to the mid-$42 level. The stock has recovered since then, but shares have been pulling back ahead of today’s report. Chart source: thinkorswim® by TD Ameritrade. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

Oracle Options Activity

Around the upcoming earnings release, options traders have priced in a 6.1% ($2.83) stock move in either direction, according to the Market Maker Move indicator on the thinkorswim® platform. Implied volatility is on the high end ahead of today’s report, sitting at the 91st percentile as of this morning. 

In short-term trading at the Dec. 21 monthly expiration, calls have been active at the 49 and 50 strike prices.  On the put side, volume has mostly been concentrated between the 42 strike and 46 strike. Open interest was highest at the 52.5-strike call, a level the stock was trading closer to at the end of September and mid-November, but is now a ways below it. 

There hasn’t been much trading that stands out over the next several weekly expirations. At the Jan. 18 monthly expiration, the 50-strike call has been heavily traded, while the 45-strike put is seeing a lot of activity as well. 

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation to sell the underlying security at a predetermined price over a set period of time.

Good Trading,

JJ

@TDAJJKinahan

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