Oracle Corporation Earnings: How Fast Can the Tech Giant Grow?

Oracle has done a good job of keeping its sales and earnings rising, but will the good times last?

Jun 17, 2014 at 11:05PM

On Thursday, Oracle (NYSE:ORCL) will release its quarterly report, and shareholders want to see the same profit and revenue growth that has helped the stock recover almost all of its losses since the tech bubble burst in 2000. Yet, more recently, competition in the industry has become even fiercer than in the past, and even though Oracle has done a good job of giving enterprise customers what they want in terms of cloud-based offerings, IBM (NYSE:IBM), Microsoft (NASDAQ:MSFT), and other companies in the space are fighting hard to build their own market share at Oracle's expense.

Oracle has a long history of serving enterprise customers with popular software offerings, and it's done a good job of pioneering the trend toward subscription-based cloud software rather than one-time-sale licensed software offerings. The big question facing Oracle, though, is whether it can fend off price competition from rivals like IBM and Microsoft, while keeping its quality up to par. Let's take an early look at what's been happening with Oracle during the past quarter, and what we're likely to see in its report.

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Oracle CEO Larry Ellison. Image Source: Oracle PR, Flickr.

Stats on Oracle

Analyst EPS Estimate

$0.95

Change From Year-Ago EPS

9.2%

Revenue Estimate

$11.48 billion

Change From Year-Ago Revenue

4.9%

Earnings Beats in Past 4 Quarters

2

Source: Yahoo! Finance.

Can Oracle earnings keep up their growth pace?
In recent months, investors have mostly stood pat on their views about Oracle earnings, boosting out-year fiscal 2015 earnings projections by $0.01 per share. The stock has climbed nicely, though, rising 13% since mid-March.

Oracle fell short of what investors had hoped to see from the company in its February quarter. Oracle's net income was flat on 4% revenue growth, with extensive stock buybacks helping boost earnings on a per-share basis. Even with the tepid results, Oracle's cloud business did reasonably well, with Cloud Software subscription revenue rising 25% in the quarter. Moreover, Oracle's Engineered Solutions division also produced solid growth, showing the extent to which enterprise customers don't want to mix and match solutions from Oracle, Microsoft, IBM, and other players, instead relying on a single provider to offer a comprehensive solution to all their cloud-computing needs.

One big problem Oracle faces is the commoditization of cloud services. A huge price war in basic cloud services has hit the market, with Microsoft likely to follow the lead of other major tech players at the low end of the market. IBM wants to retain a reputation for premium offerings, but it's unclear whether it will succumb to pressure to match lower prices in order to keep market share high.

Nevertheless, Oracle has some competitive advantages that go back to its early history. With its expertise in database management, Oracle has the inside track on adapting its products to match up to advances in technology. Moreover, neither Microsoft nor IBM have database products that are as customized for cloud-computing use as Oracle's new Database In-Memory product. With advantages in processing and analysis, optimizing databases for the cloud is an essential part of enterprises making the most of data analytics capabilities.

In the Oracle earnings report, watch to see the extent to which CEO Larry Ellison, or other executives, talk about the competitive landscape in cloud computing. By listening closely, you'll be able to figure out which companies are the biggest threats to Oracle's long-term success.

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Dan Caplinger has no position in any stocks mentioned. The Motley Fool owns shares of International Business Machines, Microsoft, and Oracle. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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