Entering text into the input field will update the search result below

Oracle Earnings Preview: Old Tech W/ 6% Free-Cash Yield But Optimism Around Cloud Might Be Premature

Mar. 08, 2021 3:01 AM ETOracle Corporation (ORCL)18 Comments
Brian Gilmartin, CFA profile picture
Brian Gilmartin, CFA


  • The recent Barron's article on Oracle's cloud effort has catalyzed the stock.
  • Even with the installed base, Oracle is behind Amazon's AWS, Microsoft's Azure, and Google Cloud in terms of market share.
  • Much of Oracle's growth has come from margin gains and share repurchases the last three years.
  • Oracle's "quality of earnings" is actually pretty poor - surprising for a software company.

Oracle (NYSE:ORCL) reports its fiscal third-quarter '21 financial results after the closing bell on Wednesday, March 10, 2021.

Street consensus is currently expecting $10.07 billion in revenue and $1.11 in earnings per share for expected year-over-year growth of 3% and 16% respectively.

More importantly, Oracle's fiscal Q4 ending May every year is usually its strongest quarter of the year, and those consensus estimates currently expect $10.8 billion in revenue on $1.28 in earnings per share per year for expected year-over-year growth of 4% and 7% respectively.

The guidance for Q4 '21 will be critical on Wednesday night.

One thing that surprised me after the positive Barron's article on Oracle's cloud business was that forward EPS estimates for the database giant didn't improve from Q2 '21's estimates and in fact have been revised lower since the December '20 Q2 '21 financial results.

Forward EPS and revenue estimates for Oracle

Q3 '21 est Q2 '21 Q1 '21 Q4 '20
fy 2023 EPS est $5.08 $5.13 $4.93 $.72
fy 2022 EPS est $4.68 $4.71 $4.56 $4.41
fy 2021 EPS est $4.36 $4.37 $4.21 $4.07
fy 2023 est EPS gro rt 9% 9% 8% 7%
fy 2022 est EPS gro rt 7% 8% 8% 8%
fy 2021 est EPS gro rt 13% 13% 9% 5%
fy 2023 PE 14x 12x 12x 12x
fy 2022 PE 15x 14x 13x 13x
fy 2021 PE 16x 15x 14x 14x
fy 2023 Revenue est $42.5 $42.6 $41.0 $41.3
fy 2022 rev est $41.1 $41.2 $40.1 $40.1
fy 2021 rev est $40.09 $40.1 $39.3 $39.3
fy 2023 est rev gro rt 3% 4% 2% 3%
fy 2022 est rec gro rt 3% 3% 2% 2%
fy 2021 est rev gro rt 3% 3% 0% 0%
  • Source: Consensus estimates IBRES data by Refinitiv as pf 3/7/21

This article was written by

Brian Gilmartin, CFA profile picture
Brian Gilmartin, is a portfolio manager at Trinity Asset Management, a firm he founded in May, 1995, catering to individual investors and institutions that werent getting the attention and service deserved, from larger firms. Brian started in the business as a fixed-income / credit analyst, with a Chicago broker-dealer, and then worked at Stein Roe & Farnham in Chicago, from 1992 - 1995, before striking out on his own and managing equity and balanced accounts for clients. Brian has a BSBA (Finance) from Xavier University, Cincinnati, Ohio, (1982) and an MBA (Finance) from Loyola University, Chicago, January, 1985. The CFA was awarded in 1994. Brian has been fortunate enough to write for the TheStreet.com from 2000 to 2012, and then the WallStreet AllStars from August 2011, to Spring, 2012. Brian also wrote for Minyanville.com, and has been quoted in numerous publications including the Wall Street Journal.

Analyst’s Disclosure: I am/we are long ORCL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

Comments (18)

Oracle is increasingly looking like IBM in the making. Rather than chasing cloud dreams which it won't and cant, instead it should lead Hybrid cloud movement and take the bull by horns in this space. Oracle should own up Nutanix and help enterprises pull back their workloads back into on-prem. This is the only path Oracle should commit to.
Brian Gilmartin, CFA profile picture
@Sridhar Kondoji That kind of technological insight is beyond me Sridhar. I simply watch the numbers, i.e. the EPS and revenue revisions, etc., and the valuation.
@Sridhar Kondoji - this is exactly what they are doing. ISP's coming on board this year. companies migrating to fusion ERP which will need databases and infrastructure. there is much to like what they are doing. this is the year. 5%-7% growth in Q4 and much higher in 2022 Q1. There margins increased 300 basis point in the latest quarter. this is due to them selling more cloud products. sadly, their legacy businesses are hiding a great story.
@brian Gilmartin, CFA - it's hard to make real money with your approach. don't you think it is sort of backward thinking. when you know it everyone knows it.
The author doesn't see the forest for the trees. He gets bogged down in the financial minutia rather than taking a more strategic view of Oracle. I spent 30 years in the IT field and have a healthy respect for Oracle's database and enterprise applications, all of which should continue to contribute to the top and bottom lines. The cloud is a new IT trend, but it by no means encapsulates all the possible growth and innovation in the IT field that Oracle naturally can segue into, even if it does not benefit significantly from the cloud. If a company like Microsoft with perpetually buggy software has risen from the ashes, how much more so Oracle.
Brian Gilmartin, CFA profile picture
@John Reswob yeah ok, that's why Oracle is trailing and has trailed every other cloud product for years now. Oracle used to disclose their SAAS and PAAS and IASS products by segment, then suddenly stopped disclosing about three years ago. Stopping disclosure around an emerging product segment is never a good sign for analysts. I'm not saying Oracle cant get to a meaningful cloud product and contribution, but like the State of Missouri, it's a "show me" proposition for investors after the many false starts and failed promotions.
I think that this article is totally misguided and I believe that the article in Barron's is much closer to reality.I am a great fan of Oracle and I think that it has by far the most superior Cloud offering on the market. In fact it's Cloud offering is unique in several respects: Automatic operation with self correction and self updating thus independent on the operator's error or procrastination in applying the necessary patches.( note the recent hacking of MSFT ). Oracle's Cloud security is much better than any other on the market. ORCL has the lowest P/E by far compared to it's competitors. ( except possibly IBM ).
ORCL Cloud is unique in its ability to accommodate the largest global companies.
ORCL Cloud also has Cloud at Customer and Roaming Cloud offerings which are also unique and valuable.But as I already noted , as a long time fan of
ORCL, I am probably biased.
Sold all my positions in ORCL last week. They have an impressive sales staff and I want mysql to carry on, but as a user of OCI (Oracle Cloud Infrastructure), it is a pretty weak offering.
@olivelawn - OCI sold out last quarter because of high demand. you might want to check your thesis.
Like the author, I've been surprised at how resilient the stock price trajectory has been over the past 6+ months, esp. post last earnings call. But if senior management's words are taken for their word, it may just be possible that their 2 key foundation technologies, 1) database, and 2) ERP systems may just have the kind of mojo that is not (yet) seen on the surface, but a lot is going below view. Mr. Ellison, after all, has been declaring for some 4 quarters at least, that his ERP Fusion platform(s) are being 'giantly' migrated to by many global MNCs and SAP's taken out, because ORCL's Fusion Cloud has no parallel in the market.
The day may well have come when this claim is more true than false, and what if, in addition, Netsuite's mojo is also on a ramp across many mid and small sized companies as they also want to have their systems running in the Cloud?
Brian Gilmartin, CFA profile picture
@alpine agree alpine, but if that were the case you'd have thought est's would have moved higher (by now).
@Brian Gilmartin, CFA - why would you think that estimates would have been revised upward (one has). most analysts are a bunch of cowards and will not make a call until the numbers prove a thesis. that is what is going on here. if orcl sees there database, ERP, and cloud infrastructure, then, the stock will reprice with at least a 50% upside. Maybe a double. Compare the p/e ratios of orcl vs other enterprise IT companies. their forward p/e is currently 14. that could double in 2021. combine that with a sign signs of overall corporate revenue growth the stock is going to fly. the time to bet on that is today. to me, this stock is a no-brainer now. limited downside and lots of potential upside. good luck.
@Brian Gilmartin, CFA These days, much of what goes on in EPS drivers is running deep underneath, as the latest FASB requirements for software companies requires an AI model all of its own to peel back how EPS in any quarter is doing vs the underlying strength of the Company. In this regard, I've recently become an almost naive believer in such things as ARR, RPO and other 3 and 4 letter shortforms that keeps one on one's toes.....but fortunately, with ORCL, we have far less unknown unknowns and enough known unknowns to feel that perhaps you were right in your call in your earlier article.
As an European resident, I do dare say, nervously, that I worry US tech firms seem to be getting a firm 'edge' of sorts over their European peers......I think of the likes of Siemens (vs. GE), Airbus (vs. BA), Dassault Systems (vs. ADSK, ANSS), and practically all the banks on this side of the Atlantic vs just those cloistered around and in NY alone.
sjm- cfa profile picture
Reasonable article although I think you are applying growth tools (earnings revision and earnings quality) to a value stock, where they are generally less suited.

ORCL has generally been under the radar the last few years as it has tried to transform into a more cloud-focused organization as its core business has been under attack. The stock has been a "value" while "growth" stocks have been more in favor the last few years (until more recently). I established a position at $56.4 as I considered the stock "mis-priced." Its unclear to me the company can successfully morph back into high growth company. The recent move in the stock puts the stock closer to my est. FV of $74 where trimming may be appropriate.

Good luck to all.
Brian Gilmartin, CFA profile picture
@Brian Gilmartin, CFA with the enthusiasm around Cloud SJM, thought est's would have been higher, also expense cuts should have moved EPS est's higher.
amzn4ever profile picture
ORCL is and will continue to be in the "Other" category for cloud for a long time.
Brian Gilmartin, CFA profile picture
@matttech please expound, Matt.
Disagree with this article? Submit your own. To report a factual error in this article, . Your feedback matters to us!
To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.