It's sounds almost simplistic to say that Oracle's shares will only move tonight after the company reports its fourth quarter earnings with a sizeable surprise, either to the up or downside. And some analysts I'm talking to say that surprise, to the upside, is indeed a real possibility.
Analysts expect 44 cents a share on $6.47 billion, but with the company already guiding 42 to 46 cents, it seems consensus is very subdued. As Pacific Crest's Brendan Barnicle asks, when has this company ever come in at the mid-point of its range? And with favorable currency conditions, it would seem this company is headed for a beat, in a fairly significant way. Barnicle anticipates 47 cents a share on $6.67 billion, by the way.
The key metrics to examine: The maintenance fees, which show up on the spreadsheet as "software licenses and product support" revenue, which should come in around $3.1 billion. Go deeper into the supplemental report and look for new licenses to be between $2.45 billion and $2.5 billion; database software should be $1.76 billion to $1.79 billion; and application software of $701 million to $710 million.
Look for the company to ratchet down guidance as well, with revenue expected to decline anywhere from 2 percent to 5 percent, with new license revenue expected to be between $1.04 billion to $1.15 billion, or a 16 percent decline.
Oracle's acquisition of Sun Microsystems. The news raised eyebrows because it had Oracle entering into the hardware business, something sources at Oracle told me the company had no interest in just days before the acquisition was announced. Conventional thinking is that Oracle can make the Sun deal accretive by at least 15 cents on a non-GAAP basis in the first full year following the deal closing. Analysts also suspect that Sun could contribute $1.5 billion in non-GAAP operating profits during that same time period, and up to $2 billion the following year. Barnicle calls Oracle's deal for Sun "under-appreciated."
Still, Oracle does have some deeper issues that its cousins in the software business don't, most notably the company's $10 billion in long term debt. Oracle's cash position doesn't come anywhere close to that of Microsoft, but the business models are far different, with Oracle acquiring its way to growth, and Microsoft living off its Windows franchise.
So what's an investor to do?Oracle shares are up 40 percentoff their March lows, and now the company must digest the Sun deal, which might take a while. Oracle might be a good bet if favorable currency really juices profit today. But after today, things could be quiet and drab until Sun starts contributing. And that might mean now is precisely the right time to roll the dice.
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