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Oracle Corporation: After Such An Outlook, Where Can It Go?

Can the company’s substantial growth in cloud-computing be big enough to drive it forward?

Oracle Corporation (NYSE:ORCL) announced the second-quarter earnings results for fiscal 2016 (2QFY16) after the market closed last night. The enterprise disclosed dry revenues for the recent quarter. The strength of dollar was one factor that negatively impacted the revenue. The company reported top-line revenue of $9 billion, down 6% year-over-year (YoY) in dollars.

Earnings per share (EPS) came in at $0.63, beating the Street’s expectations of $0.60. This was due to improved cost controls and the on-going share buyback program.

During the event, investors were keen to gather information about the company’s cloud-computing division. The division displayed a promising picture of the transition from its core software-licensing business to a cloud-centric business model. Cloud revenues totaled $649 billion showing a growth of 31% YoY in constant currency terms. Taking into account the FX headwinds, 26% growth in US dollars was recorded.

Oracle’s focused areas of software as a service (SaaS) and platform as a service (PaaS) together brought in $484 million, up 34% YoY in dollar terms and 39% in constant currency terms. Cloud infrastructure as a service (IaaS) revenues were $165 million, up 7% YoY in U.S. dollars and up 11% in constant currency.

While cloud revenues impressed the stockholders, guidance for the upcoming quarters was disappointing. Oracle expects 3Q EPS within $0.60–0.63 as compared to a consensus of $0.65. For 3Q, SaaS and PaaS revenue is expected to grow in the range of 49–53% YoY in constant currency terms. IaaS revenue growth is calculated to fall within 3–7%YoY.

Furthermore, even the fourth-quarter guidance did not do much to push the company going forward. 4Q EPS is likely to fall within $0.80–0.83 in comparison to consensus estimated $0.82. SaaS and PaaS are anticipated to grow 55–59% YoY in constant currency terms with gross margins expected to be around 55–60% YoY along with IaaS growth to be 1–5% YoY.

Building up to the earnings release, the stock has gained 5% from the start of the week. Yesterday’s trading alone led to a 2% increase in the stock price. However, after the earnings report, investors were not pleased with the numbers going forward. The stock is trading in red at $37.17 down 4.47% as of 11:15 am EST.

Despite growth in the cloud business, revenues from this stream only accounted for 5% of the overall figure. Looking at its double-digit growth numbers, cloud is no doubt performing really well. Hence, investors are careful on bidding a substantial amount of money on Oracle stock.

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