Will Oracle Win The Virtual Gold Rush Into Cloud Services?

| About: Oracle Corporation (ORCL)

Oracle Inc. (NASDAQ:ORCL) is set to report FQ3 2014 earnings after the market closes on Tuesday, March 18th. Oracle is a technology company known for selling enterprise software, cloud services, and computer hardware systems. Oracle is in the middle of a transition to beef up its catalog of cloud software apps. Cloud services are expected to be a major area of growth over the next 10 years and competition within the space is heating up. Competitor IBM (NYSE:IBM) recently announced a $1.2 billion investment in data centers to bolster its own cloud service offerings. Last quarter Oracle pleased investors with a stronger than expected earnings report, this quarter Wall Street is expecting a 4.4% increase in revenue compared to FQ3 last year. A 4.4% sales gain would represent the largest quarterly sales increase of the past 2 years. Here's what investors are expecting from Oracle on Tuesday.

The information below is derived from data submitted to the Estimize.com platform by a set of Buy Side and Independent analyst contributors.image

(Click Here to see Estimates and Interactive Features for Oracle)

The current Wall Street consensus expectation is for Oracle to report 71c EPS and $9.355B revenue, while the current Estimize.com consensus from 41 Buy Side and Independent contributing analysts is 70c EPS and $9.386B in revenue. This quarter the buy-side, as represented by the Estimize.com community, is expecting Oracle to beat the Wall Street consensus on both EPS and revenue.

By tapping into a wider range of contributors including hedge-fund analysts, asset managers, independent research shops, students, and non-professional investors Estimize has created a data set that is more accurate than Wall Street up to 69.5% of the time, but more importantly, it does a better job of representing the market's actual expectations. It has been confirmed by an independent academic study from Rice University that stock prices tend to react with a more strongly associated degree to the expectation benchmark from Estimize than from the Wall Street consensus.

The magnitude of the difference between the Wall Street and Estimize consensus numbers often identifies opportunities to take advantage of expectations that may not have been priced into the market. In this case, we are seeing a smaller than usual difference between the 2 groups' expectations.image

The distribution of estimates published by analysts on the Estimize.com platform range from 67c to 74c EPS and from $9.125B to $9.626B in revenues. This quarter we're seeing a slightly smaller than usual distribution of estimates on Oracle.

The size of the distribution of estimates relative to previous quarters often signals whether or not the market is confident that it has priced in the expected earnings already. A narrower distribution of estimates signaling more agreement in the market, which could mean less volatility post earnings. image

Over the past 4 months, the Wall Street EPS consensus remained flat at 70c, while the Estimize consensus decreased from 72c to 71c. Meanwhile, the Wall Street revenue forecast fell from $9.377B to $9.355B while the Estimize forecast tumbled from $9.512 to $9.386B. Timeliness is correlated with accuracy and downward analyst revisions at the end of the quarter are often a bearish indicator.image

The analyst with the highest estimate confidence rating this quarter is anmikyoso who projects 73c EPS and $9.494B in revenue. In the Winter 2014 season, anmikyoso is rated as the 36th best analyst and is ranked 31st overall among over 3,950 contributing analysts. Throughout over 200 estimates anmikyoso has been more accurate than the Street in forecasting EPS and revenue 61% and 53% of the time respectively. Estimate confidence ratings are calculated through algorithms developed by deep quantitative research, which looks at correlations between analyst track records and tendencies as they relate to future accuracy. In this case, anmikyoso is making a bullish call expecting Oracle to beat Estimize community's expectations on both EPS and revenue.

Cloud services are expected to be a major sector of growth over the next 10 years and this quarter marks an important opportunity for Oracle. Competition to capture businesses' cloud service needs is heating up and lately Oracle's revenue growth has been sluggish. Over the past 4 quarters Oracle has seen year over year revenue growth of -1%, 0%, 2%, and 2% sequentially. However, this quarter contributing analysts on the Estimize.com platform are expecting Oracle to get things back in gear and beat the Street's sales forecast by $31 million.

Disclosure: None