Tags: Earnings
Stocks: CORP, ORCL

Oracle Corp. (NYSE: ORCL) Stock Down 6% on Earnings Miss

By , Contributing Writer, Money Morning •

Update: Oracle Corp. (NYSE: ORCL) stock slumped some 6% to $36.52 after hours Tuesday following Q3 results that missed on the top and bottom line.

The software giant posted EPS of $0.68, 2 cents shy of estimates, on revenue of $9.3 billion, short of the $9.4 billion analysts were looking for.

Despite the misses, improvements were logged across all segments.

New software licenses and cloud subscriptions revenue rose 4% to $2.4 billion. Software license updates and product support revenue was up 5% to $4.6 billion. Hardware systems products revenue climbed 8% to $725 million.

"In constant currency, our Cloud Software Subscriptions revenues grew 25% and our Engineered Systems revenue grew more than 30% in the quarter," Oracle President and CFO Safra Catz said in a statement. "Oracle Cloud Applications and Engineered Systems are both rapidly growing, billion-dollar run-rate businesses. Those two high-growth businesses helped us deliver record year-to-date operating cash flow, and a record $15 billion of operating cash flow over the past twelve months."

A conference call is scheduled for 5 p.m. EST.

This updates our original story published earlier today:

Investors are hoping Oracle Corp. (NYSE: ORCL) will duplicate the same stellar results posted in December when the company reports fiscal Q3 2014 earnings Tuesday after the close.

Analysts are looking for a 4% increase in revenue to $9.4 billion and earnings per share to climb a nickel year over year.

Consensus estimates have the software giant reporting third-quarter earnings per share of $0.70, a penny ahead of the $0.69 per share logged in the previous quarter. Revenue is expected to come in at $3.19 billion.

Boding well for investors heading into the release is that average earnings estimates have remained steady over the last three months. Moreover, analysts underestimated the company's previous quarter by about 3%.

Additionally, the Redwood City, Calif.-based company has only fallen short of expectations in just one of the last four quarters, and then by just a penny per share.

Ahead of Tuesday's report, Evercore Partners lifted its price target on Oracle to $40. That followed a similar increase last week from Wedbush, as well as a Barclays boost last week from $41 to $44.

Oracle stock, which has barely budged from $37.78 on the first trading day of 2014, is due for a bounce. A better-than-expected report or rosy guidance could send shares sharply higher. Indeed, ORCL shares climbed roughly 9% in the days following its Q2 report.

In order to get that bounce, here's what Oracle needs to report...

What to Watch in Oracle's (NYSE: ORCL) Earnings Report Today

Despite an encouraging Q2, concerns linger about ORCL's ability to grow.

In Tuesday's report, Wall Street will be closely watching Oracle's progress in its hardware products, software sales, cloud business, and hints of additional acquisitions for signs of continued growth.

Hardware: Sales of computer servers and hardware, a weak spot, are expected to rise 2.7% from a year ago. That would be an improvement from Q2's showing of down 3%. "Oracle's hardware product revenue may be turning the corner to year over year growth, as Oracle's Exa (engineered systems) revenue growth mitigates the headwinds in the high-end server market," Wedbush analyst Steve Koenig wrote in a research note.

Software: Last quarter, Oracle showed its muscle by demonstrating its traditional software is still favored over upstarts such as Workday Inc. (Nasdaq: WDAY). Oracle pleasantly surprised investors when it said Q2 new software licenses grew 22% to $13 million from $421 million during the first six months of fiscal 2014. New software license sales or subscriptions are anticipated to be about 5% higher in Q3 than the same period a year ago.

Cloud: Oracle's cloud subscription sales soared 35% in the last quarter, helping operating cash flow to hit a record high. Cloud subscription revenue is expected to grow Q3, thanks to expansion in organic sales from its Fusion Cloud application suite and inorganic channels such as Responsys (acquired in December 2013). But Cowen & Co. analyst Peter Goldmacher says Oracle's cloud business is merely limping along. Accounting for only 3% of revenue, cloud is nonetheless a major storyline for the company. During ORCL's Q2 conference call, company execs said "cloud" 38 times. To put that in perspective, if mentions were revenue, ORCL's cloud business would be at least a quarter of its sales.

Acquisitions: Oracle is known for savvy acquisitions, such as Responsys, a provider of enterprise-scale cloud-based business to consumer (B2C); Corente, a provider of software defined networking technology for wide area networks; and BlueKai, a cloud-based Big Data platform. The company, however, is also haunted by its $7.4 billion 2010 acquisition of Sun Microsystems. Aimed at boosting its slumping server business, Sun has yet to be the bright spot Oracle hoped for. Meanwhile, Wall Street keeps waiting for cash-rich Oracle (the company has some $34 billion cash on hand) to make the "big" purchase that will elevate the company's stature and propel it into new territories.

In mid-afternoon trading, with all three major benchmarks comfortably in the green, ORCL was trading up 1.18% at $38.67.

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