Database giant and cloud computing laggard Oracle (NYSE:ORCL) will report its fiscal first-quarter results after the market closes today. The company disappointed investors last time around, posting mixed results and providing guidance that was below expectations. The stock has fully recovered since then, but Oracle's problems haven't disappeared.

What analysts are expecting

Oracle's first-quarter guidance calls for year-over-year revenue growth between 1% and 3%, adjusted for currency. That works out to revenue between $9.28 billion and $9.46 billion assuming no currency impact, short of the $9.51 billion analysts were expecting for the first quarter at the time the guidance was given. Analysts now see first-quarter revenue growing by just 1.1% on average to $9.31 billion.

The average analyst estimate for non-GAAP earnings per share sits at $0.69, up from $0.62 in the prior-year period and at the high end of Oracle's guidance range of $0.67 and $0.69. While Oracle's cloud business is struggling to catch up to rivals, it enjoys some major competitive advantages in its core database business that keep the profits flowing.

A stylized cloud.

Image source: Getty Images.

Trouble with the cloud

The company got a late start in the cloud computing market, and after years of tough talk it hasn't made a lot of progress. Judging that progress got harder in June, when Oracle changed the way it reports its cloud results. New reporting segments make it impossible to tell how the company's cloud infrastructure business is really doing.

Oracle's cloud growth numbers have also been called into question. The City of Sunrise Firefighters' Pension Fund filed a class action lawsuit against Oracle in August, claiming that the company used threats and extortive tactics to push sales of its cloud products. The suit claims that this made it appear that demand for Oracle's cloud was stronger than it really was.

On top of the reporting change and the lawsuit, Bloomberg reported last week that Oracle executive chairman Larry Ellison and president of product development Thomas Kurian fundamentally disagree on the direction of the cloud business. Kurian wants to make more of Oracle's software available on rival public clouds to hedge its own cloud infrastructure bet, while Ellison holds the opposite view.

Oracle made a big cloud infrastructure push in 2016 when it launched its second-generation cloud infrastructure. "Amazon's lead is over. Amazon's going to have serious competition going forward," Ellison said during his presentation at Oracle's OpenWorld conference that year. That turned out to be nothing but bombast. Oracle's public infrastructure-as-a-service business failed to crack the top five in terms of market share in 2017, according to Gartner.

While Oracle has ramped up its capital spending as it builds its cloud business, capital spending actually decreased in fiscal 2018, which ended in June. The company spent just $1.74 billion on property and equipment in 2018, down from over $2 billion in 2017 and well below what other cloud infrastructure companies spent. Microsoft, for example, spent $11.6 billion during its fiscal 2018 on capital expenditures, up 43% from 2017.

Despite what the company says, Oracle doesn't appear all that serious about becoming a major cloud infrastructure player.

The proof is in the pudding

Oracle co-CEO Safra Catz said during the last earnings call that the company expects its overall revenue growth rate to accelerate as the cloud business accounts for a growing percentage of total revenue. "While any one quarter's results may vary, we expect to increase our revenue growth rate this year and beyond," Catz said.

The big question, though, is how much of Oracle's cloud growth is coming from new customers. "A lot of our new customers in the cloud are not existing Oracle customers. So, obviously, those are new workloads, and we're getting a lot of those," Ellison said during the same earnings call. But Ellison conceded that the majority of cloud growth is still being driven by Oracle's existing installed base.

Investors will be looking for any sign this afternoon that Oracle's cloud business is on track. That task has been made harder by the company's cloud reporting switcheroo. If guidance falls short again, don't be surprised if the stock takes a tumble.