Oracle Looking Strong in Q3, but Not Without Worries

Business software giant Oracle will report earnings for its third fiscal quarter later today, and analysts are expecting fairly strong results, though that’s not to say they don’t have worries, too.

The consensus view of analysts polled by Thomson Financial calls for Oracle to report a profit of 70 cents per share on revenue of about $9.4 billion. Oracle is heading into its seasonally stronger period, and so its guidance for the quarter that ends in May will be closely watched. The consensus view on Q4 projects a 96-cent profit on revenue of $11.5 billion.

Last March, Oracle shares took a beating after the company missed earnings expectations by a penny and also fell short on revenue. Since then it has bought a few companies, including the cloud-based marketing software firm Responsys, another called BlueKai and a software-defined networking firm called Corente.

Analyst Steve Koenig of Wedbush Securities, in a note published last week, said the Responsys deal should boost Oracle’s revenue by $172 million over the next four quarters. But he says growth from prior cloud deals may be slowing.

Oracle’s three main acquisitions for cloud software companies were for the human resources software firm Taleo, the marketing software firm Eloqua in 201; and a customer service software firm RightNow in 2011. Oracle paid a combined $4.2 billion for all three.

The acquisitions were meant to counter threats by other cloud software firms like Salesforce.com and Workday. Salesforce has been acquiring marketing software companies like Buddy Media and ExactTarget. Meanwhile Workday, the cloud-based human resources software firm, grew sales by 71 percent year on year.

Oracle’s cloud revenue, Koenig wrote, appears to be “growing only minimally on an organic basis,” despite the acquisitions and the fact that Oracle has a larger sales force selling the products.

Another number to watch in today’s report: New software license revenue. This is probably Oracle’s most important, but not its biggest number. Analysts are expecting Oracle to report about $2.4 billion in revenue from new licenses. New licenses lead to ongoing sales for software updates and support; Oracle is expected to report about $4.6 billion in sales there.

Then there’s the ongoing story of Oracle’s hardware business. Comprised primarily of the old server business of Sun Microsystems which Oracle acquired in 2010, shareholders have been waiting for the business to turn a corner. Oracle’s own guidance range suggests the possibility of a decline in sales by as much as one percent to an increase of nine percent.

Most analysts are expecting growth: As Joel Fishbein of BMO Capital Markets observed in a research note published Monday, out of some 300,000 companies using Oracle database software, only 2,000 to 3,000 of them use Oracle hardware to run it. “Bottom line, Oracle will likely gain share in the systems hardware market,” he wrote.

This article originally appeared on Recode.net.

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