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Oracle Earnings: Can Rising Cloud Make Up For Legacy Fall?

Analysts expect Oracle ( ORCL ) to show a fourth consecutive quarter of year-over-year earnings and sales declines in its Q3 fiscal 2016 report after the close Tuesday. The business software giant rose 2.4% to 38.95 Friday, hitting a 3-month high and rising back above its 200-day moving average. Oracle stock fell 0.6% to 38.70 in the stock market today , holding above the 200-day. Oracle stock remains 14% off a more than one-year high set June 17, and nearly even with its 38.91 close on Dec. 16, right before its fiscal Q2 earnings release showed shrinking earnings and sales. That report sent the stock sliding to a 25-month low of 33.13 on Jan. 20. “The stock is down 1.1% since (fiscal 2016’s second-quarter) earnings, outperforming the S&P 500, down 4.0%, given the general rotation out of growth stocks into more value names like Oracle,” wrote Nomura analyst Frederick Grieb in a research note Thursday. “While metrics for cloud revenue growth have been solid, investors remain concerned by what the potential cost will be to the legacy business, as well as the potential impact to margins during the transition.” Meanwhile, Pacific Crest Securities says more business users expect to increase spending on software-as-a-service (SaaS) from Microsoft ( MSFT ) than any other vendor, followed by spending increases for Oracle, then rivals SAP ( SAP ),  Salesforce.com ( CRM ) and others. Microsoft stock closed up 2% to 53.07 Friday, then advanced 0.2% on Monday. SAP gained 2.3% to 78.65 on Friday, tacking on 0.1% on Monday. Salesforce rose 1.3% to 71.63 on Friday, then climbed 0.8% on Monday, finding resistance at the 200-day line. Analysts expect Oracle’s legacy-software license sales to continue falling faster than increasing cloud-subscription sales will rise, at least in the short term. Those polled by Thomson Reuters now model total Q3 revenue down 2% from a year earlier to $9.13 billion, revised down from $9.28 billion, estimated when Q2 earnings were released. They see adjusted EPS of 62 cents, down 9% from a year earlier and down from the 65 cents they estimated three months ago for Q3. In a conference call with analysts after the Q2 release, CEO Safra Catz guided Q3 revenue to a $9.08 billion midpoint and earnings to a range of 60 to 63 cents per share minus items. Anticipating more acceleration of cloud revenue in the second half of the fiscal year for Oracle, Nomura’s Grieb said: “It will be important to make sure that the company is not losing share to the competition. Strong cloud growth rates supported the business until the steep license revenue declines in the last few quarters suggested that the company may not be successfully converting on-premise customers to the cloud. “Investors are concerned that Oracle is not only cannibalizing the on-premise license business, but also offering aggressive incentives to sign cloud customers.” Nomura maintains a buy rating with a 44 price target on Oracle. Aggressive discounting of subscription sales might be why Pacific Crest Securities analyst Brendan Barnicle found feedback from Oracle customers better than expected. “Even though cloud is lagging with existing customers, it is doing better with new customers and cloud revenue recognition on existing deals is likely to drive upside to cloud expectations,” Barnicle wrote in a research note Thursday. “Among SaaS vendors, Oracle showed well in the recent Pacific Crest CFO survey.” He added that feedback about on-premises “applications was surprisingly positive,” particularly in the installed base. “We had little feedback on the database and infrastructure businesses. As a result, we see upside to the Cloud SaaS and PaaS  (platform-as-a-service) revenue expectation of $554 million and overall revenue expectation of $9.127 billion,” Barnicle wrote. “We are less confident on EPS upside. EPS consensus of 62 cents seems a bit high, so we expect in-line EPS.” Pacific Crest carries Oracle with a sector weight rating, akin to a hold rating. In his recent survey of CFOs, Barnicle said that 46% plan to increase SaaS spending in 2016 with Microsoft, followed by 26% with Oracle, 25% with SAP, 16% with Salesforce.com, and about 12% each with HubSpot ( HUBS ) and Paylocity ( PCTY ). Image provided by Shutterstock .

Oracle Earnings Ahead: Can Rising Cloud Make Up For Legacy Fall?

Analysts expect Oracle ( ORCL ) to show a fourth consecutive quarter of year-over-year earnings and sales declines in its Q3 fiscal 2016 report after the close Tuesday. The business software giant rose 2.4% to 38.95 Friday, regaining the ground lost since its last quarterly report in mid-December. Oracle stock was down a fraction in early trading in the stock market today . Oracle stock remains 14% off a more than one-year high set June 17, and nearly even with its 38.91 close on Dec. 16, right before its fiscal Q2 earnings release showed shrinking earnings and sales. That report sent the stock sliding to a 25-month low of 33.13 on Jan. 20. “The stock is down 1.1% since (fiscal 2016’s second-quarter) earnings, outperforming the S&P 500, down 4.0%, given the general rotation out of growth stocks into more value names like Oracle,” wrote Nomura analyst Frederick Grieb in a research note Thursday. “While metrics for cloud revenue growth have been solid, investors remain concerned by what the potential cost will be to the legacy business, as well as the potential impact to margins during the transition.” Meanwhile, Pacific Crest Securities says more business users expect to increase spending on software-as-a-service (SaaS) from Microsoft ( MSFT ) than any other vendor, followed by spending increases for Oracle, then rivals SAP ( SAP ),  Salesforce.com ( CRM ) and others. Microsoft stock closed up 2% to 53.07 Friday. SAP gained 2.3% to 78.65, while Salesforce rose 1.3% to 71.63. Analysts expect Oracle’s legacy-software license sales to continue falling faster than increasing cloud-subscription sales will rise, at least in the short term. Those polled by Thomson Reuters now model total Q3 revenue down 2% from a year earlier to $9.13 billion, revised down from $9.28 billion, estimated when Q2 earnings were released. They see adjusted EPS of 62 cents, down 9% from a year earlier and down from the 65 cents they estimated three months ago for Q3. In a conference call with analysts after the Q2 release, CEO Safra Catz guided Q3 revenue to a $9.08 billion midpoint and earnings to a range of 60 to 63 cents per share minus items. Anticipating more acceleration of cloud revenue in the second half of the fiscal year for Oracle, Nomura’s Grieb said: “It will be important to make sure that the company is not losing share to the competition. Strong cloud growth rates supported the business until the steep license revenue declines in the last few quarters suggested that the company may not be successfully converting on-premise customers to the cloud. “Investors are concerned that Oracle is not only cannibalizing the on-premise license business, but also offering aggressive incentives to sign cloud customers.” Nomura maintains a buy rating with a 44 price target on Oracle. Aggressive discounting of subscription sales might be why Pacific Crest Securities analyst Brendan Barnicle found feedback from Oracle customers better than expected. “Even though cloud is lagging with existing customers, it is doing better with new customers and cloud revenue recognition on existing deals is likely to drive upside to cloud expectations,” Barnicle wrote in a research note Thursday. “Among SaaS vendors, Oracle showed well in the recent Pacific Crest CFO survey.” He added that feedback about on-premises “applications was surprisingly positive,” particularly in the installed base. “We had little feedback on the database and infrastructure businesses. As a result, we see upside to the Cloud SaaS and PaaS  (platform-as-a-service) revenue expectation of $554 million and overall revenue expectation of $9.127 billion,” Barnicle wrote. “We are less confident on EPS upside. EPS consensus of 62 cents seems a bit high, so we expect in-line EPS.” Pacific Crest carries Oracle with a sector weight rating, akin to a hold rating. In his recent survey of CFOs, Barnicle said that 46% plan to increase SaaS spending in 2016 with Microsoft, followed by 26% with Oracle, 25% with SAP, 16% with Salesforce.com, and about 12% each with HubSpot ( HUBS ) and Paylocity ( PCTY ). Image provided by Shutterstock .

What Now? ServiceNow Confirms BMC Deal Pending; SAP, CRM Rise

Enterprise software developer ServiceNow ( NOW ) advised the Securities and Exchange Commission Wednesday that a federal court in Texas has granted a 30-day stay of all deadlines — notably this Friday’s deadline to start trial — in its defense against patent-violation claim s by BMC Software. ServiceNow and BMC requested the stay “so that the parties may document the agreement and submit appropriate dismissal papers,” ServiceNow said in an 8K filing with the SEC. What now? ServiceNow stock was down 1%, below 60, in early afternoon trade in the stock market today , after rising 3.6% Tuesday as word spread that a legal settlement was in the works. ServiceNow stock still is up for the week and could notch its fourth consecutive week of gains, after shares hit a 22-month low in early February. Shares are still 34% off a record high of 91.28 set Dec. 4. ServiceNow went public in June 2012, priced at 18. More-established rivals Salesforce.com ( CRM ) and SAP ( SAP ) were making their own moves. SAP, the largest in IBD’s Computer Software-Enterprise industry group by market cap, was up a fraction, near 77, Wednesday afternoon, just 5% off a nearly two-year high of 81.21 set Dec. 29. No. 2 player Salesforce.com was up 1.5%, near 71, 14% off a record high of 82.90 set Nov. 19. With a market cap of $9.6 billion, a tenth the size of SAP, ServiceNow is the fifth-largest member of the industry group. Evercore ISI analyst Kirk Materne, in a research note Wednesday, said that the dispute with BMC is “more of a short-term concern … than a wall of worry related to a possible penalty or injunction. “Nevertheless, we believe the (pending) settlement between the two companies does remove a near-term overhang and should allow investors to refocus attention on the longer-term opportunity,” he wrote. “We do not believe that the trial with BMC was impacting sales cycles. … We continue to like the risk/reward longer-term, but as we noted after meeting with the company in early February, NOW is likely to remain in ‘show me’ mode until it reports” its Q1 results. ServiceNow stock crashed 16% on Jan. 28 after the company reported Q4 billings below expectations, though EPS ex items jumped 533% to 19 cents, twice analysts’ expectations, and revenue rose 44% to $285.6 million, also topping Wall Street views. Materne maintained a buy rating on ServiceNow stock, with an 83 price target. Hewlett Packard Enterprise ( HPE ) also has patent infringement claims pending against ServiceNow, filed originally by the former Hewlett-Packard company.