Oracle Earnings Preview: What We’re Watching

Oracle (NASDAQ:ORCL) will report its Q2 FY13 earnings on December 18. Oracle has been trying to improve its hardware sales and gross margins since the acquisition of Sun Microsystems and has entered into markets such as social media, virtualization and project management via acquisitions in the past few quarters. Oracle had a fairly slow Q1 FY13, in terms of revenue as total revenues fell slightly y-o-y to $8.18 billion compared to $8.37 billion the previous year. The software business showed strength as it grew to slightly to $5.7 billion up 4% annually but its hardware business declined to $2.46 billion down from $2.854 billion.

Earnings per share was up 13% y-o-y at $0.41. In this earnings release, we will monitor its cloud strategy as Oracle has been on an acquisition spree, snapping up companies in social media marketing and strategy. It has acquired companies such as Skire, Involver and Xsigo recently, which shows Oracles intent to get into virtualization, project management and social media analytics. ^[1]

Check out our complete analysis of Oracle

Big Data Opportunity

Oracle is trying to capitalize on the Big Data growth opportunity through its Exalytics product which is an in-memory appliance and competes directly with SAP’s popular HANA offering. It also launched Advanced Analytics that enables users to run scripts for business intelligence applications in its Big Data appliance. Since SAP’s HANA has already been in the market for about a year, it’ll be interesting to see what Oracle has in mind to capture some market share in this space. Enterprise hardware offerings like the Exalytics appliance will not only help the company ride the Big Data trend but also enable it to improve its hardware margins by phasing out older legacy hardware, launching new high-margin hardware and bundling it with its software products. Though its hardware revenue has taken a hit recently, we expect it to improve in the coming years.

New Growth Markets

Oracle has been focusing on acquisitions in social media, virtualization and project management and has acquired companies in these industries. Oracle has entered into an agreement to acquire Xsigo Systems, a leading network virtualization company. It simplifies cloud infrastructure by using software-defined networking technology to allow customers to dynamically connect any server to any network as well as storage, resulting in efficient resource usage. We expect the technology of Xsigo to be integrated with Oracle VM for server virtualization, making Oracle cloud environment more cost effective.

It has also acquired Skire, a program management and facilities management software provider. Skire has applications both for the cloud and on-premise deployment and provides a complete set of management and governance tools from planning to the operations execution stage. This is mainly used by companies to manage their expansion and construction programs. Oracle will integrate Skire’s technologies with its range of Primavera products.

In the social media space, it has acquired Involver that mainly caters to the creation of campaigns on Facebook. It is a Facebook Marketing Developer and a technology provider for Facebook’s internal marketing team. It pioneered social apps by creating the first social app suite on Facebook and is currently leading the industry with Social Markup Language (SML) and Visual SML. This allows front-end developers to achieve what Involver calls a “pixel-perfect” application and helps marketers customize applications. It also provides an intuitive interface to build the campaign with no requirement for coding. This is Oracle’s third acquisition in the social media marketing space after its acquisition of Vitrue and Collective Intellect.

We currently have a $41 Trefis price estimate for Oracle, which stands nearly 30% above its current market price.  Database, middleware and application software accounts for nearly 80% of its value, while enterprise server and storage hardware accounts for more than 10%.

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1. Oracle SEC Filings, www.sec.gov, 24 Sep 2012 [↩]