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Earnings Preview: Oracle Reports Fiscal Q4 After Market Close

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June 21, 2017
Network and Server Infrastructure Setup
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For the most part it’s a quiet time in the markets as far as earnings goes, but tech bellwether Oracle (ORCL) reports fiscal fourth-quarter earnings after market close today, June 21. Due to the size and scope of its business, as well as generating over half its revenue overseas, its results can provide traders with a look at the global economy and tech spending across the world. 

For the fiscal fourth quarter, Oracle is expected to report earnings of $0.79 per share on revenue of $10.46 billion, according to consensus third-party analyst estimates. That’s a slight decline from 2016’s fiscal Q4 earnings of $0.81 per share and revenue of $10.6 billion. Last quarter, Oracle’s revenues came in roughly flat to consensus estimates, but earnings beat estimates by 7 cents, coming in at $0.69 per share. 

Transition to Cloud Computing and Competitors

A lot of attention has been focused on Oracle’s (ORCL) competitor Amazon (AMZN) following news of its potential $13.7 billion acquisition of Whole Foods (WFM). While Oracle’s products compete with Amazon Web Services, Oracle’s business is primarily focused on business-to-business sales whereas Amazon has a large consumer focus through sales of general merchandise on Amazon.com (figure 1).

Oracle (ORCL) business divisions compared to Amazon (AMZN)

FIGURE 1: ORACLE COMPARED TO AMAZON.

Despite competing on some levels, Amazon and Oracle have very different focuses. TD Ameritrade clients can analyze potential revenue drivers of a stock on the Fundamentals tab on the thinkorswim® platformTrefis information and estimates used in Company Profile are provided by Insight Guru, a separate and unaffiliated firm. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

While Amazon launched its Web Services as cloud-based offerings, Oracle has been transitioning from its legacy database business to cloud-focused solutions. In May, Oracle announced in a company press release that AT&T (T) “signed an agreement to move thousands of its large scale internal databases to Oracle’s Cloud Infrastructure as a Service (IaaS) and Platform as a Service (PaaS).” According to MarketWatch, Macquarie analysts estimate that deal could be worth $1 billion at scale for the company.

As part of its focus on transitioning to cloud-based services, Oracle has made several large acquisitions. Most recently, the company acquired NetSuite, a provider of enterprise planning software, for $9.3 billion in the second-half of 2016. This will be just the second full quarter of earnings that include NetSuite’s results. 

Oracle Trading and Options Activity

Oracle’s stock jumped significantly to a high of $46.99 following last quarter’s better-than-expected earnings in March (figure 2). After declining in the weeks following its fiscal Q3 results, the stock bounced around a bit, but it is getting closer to that March high with a current price just above $46. Through this morning, it’s up 20% year to date compared to a 14.4% increase in the Nasdaq (COMP).

Looking at options trading, the market has priced in an expected share price move of about 4% in either direction around its earnings release, according to the Market Maker Move indicator on the thinkorswim® platform.

At the June 23 weekly expiration, calls have been active at the 48.5 and 49 strike prices while puts have been active at the 45 strike. Implied volatility is high and, as of this morning, is at the 95th percentile.

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. 

Oracle Stock Performance Since Fiscal Q3

FIGURE 2: ORACLE PERFORMANCE SINCE FISCAL Q3.

Oracle jumped last quarter following the release of its fiscal Q3 results. After declining in the subsequent weeks, the stock has slowly climbed back closer to its mid-March highs. Oracle is charted above compared to the Nasdaq (purple line). Chart source: thinkorswim® by TD Ameritrade. Data source: Standard & Poor’s. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

Looking Ahead

Oracle reports outside of when most of its competitors report earnings and it won’t be until July and August when Microsoft (MSFT), Salesforce (CRM), Amazon and others report, giving investors a chance to get a look at the results from other major cloud-focused companies.

Next week, Nike (NKE) reports fiscal Q4 earnings on June 29 after market close, potentially providing insights into consumer spending across the globe.

Good Trading,
JJ
@TDAJJKinahan

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