Oracle Becomes Macro "Oracle" For Economy

Oracle's headquarters in Redwood City, California.
Paul Sakuma
Oracle's headquarters in Redwood City, California.

Oracle ended 2007 as the software stock pick of the year for a few key analysts on the Street for 2008, and today we'll get a good idea as to whether those optimistic outlooks are still justified.

Just about everyone I've talked to expects Oracleto beat expectations, so it doesn't seem like a question of "if," but instead, "by how much."

Analysts expect 44 cents on $6.9 billion for the company's fourth fiscal quarter, and $1.50 a share on $25.8 billion for the year.

Licensing revenue will get careful scrutiny, and look for something close to $2.91 billion to $2.99 billion. Oracle's apps business should be $866 million or higher, and technology should come in at $2.05 billion. Remember that the company's apps business was somewhat disappointing the last time around.

Still, that performance is a neat trick considering all the ongoing fear and loathing in America right now about an economic downturn and worries over a pullback in corporate IT spending. Despite those concerns, Oracle keeps humming along, and keeps signing big contracts. At least it did so over the past quarter. And while August is a traditionally a slow quarter for the software powerhouse, analysts anticipate $5.5 billion in revenue.

Brendan Barnicle at Pacific Crest Securities expects $6.9 billion and 45 cents and tells me there will be a pretty strong focus on guidance.

"I think the big issue is what they put up for guidance. The last few years, Q-1 has been pretty solid for these guys. It's seasonally slow, and they have a lot of out of office sales activities. Personal vacations. You layer that all in, and it's normally slow. What I had heard was that the (fourth) quarter was really back-end weighted, which could mean a lot of stuff in the Q-1 pipeline." He says a strong fourth quarter could be less important than comments surrounding first quarter guidance.

Part of Oracle's optimism comes from the performances of two of its key competitors: Both IBM and Microsoft have performed admirably this past year, and both had very good things to say at the conclusion of their last earnings reports. That bodes well for Oracle too, and there will be a healthy amount of interest in what the company has to say about the macro economic condition right now. Is Oracle seeing any kind of softness among its American customers? If not, that could have ramifications across a far broader swath of tech. Is Oracle another beneficiary of the weak dollar, in the same way IBM, Intel , and Hewlett-Packard have been? Likely the case, but the question that will be answered today is how much a beneficiary Oracle has truly been.

Remember also that Oracle closed its $8.5 billion deal with BEA Systems during its fourth quarter, and while it'll only contribute 30 days or so of performance, that should give investors a good idea as to just how important BEA will be to Oracle longer term.

The fact is, Oracle sells expensive database software to a host of major enterprise clients, from insurers to banks to retailers and other significant industries. That's why the company is becoming a bellwether of sorts. Improved software offers efficiencies, Oracle's sales force might say, and these companies need efficiency today more than ever before. So just because a big company is spending big on new software doesn't mean that particular company is doing well. It might seem counter-intuitive that companies are spending in order to save money, but that might be something to take into account if Oracle says it isn't seeing customer softness out there. Of course, if Oracle does indicate some kind of slowdown, that would be significant news indeed, though from what I'm hearing from the Street, that's a long shot.

Meantime, Oracle scampered to a 7-year high of $23.18 a couple of weeks ago, settling back slightly to today's $22 and change. But the company's multiple is still a very tight 14 times next year's earnings, and with so much optimism about this company's growth, and what it could do in 2009, never mind the 7-year high. Some on the Street still think this stock could be a screamin' steal.

Questions? Comments?