Oracle's Q3 expected to be strong, Fusion bandwagon fills up

Analysts are optimistic largely because Oracle has ramped its selling machine and believe that Fusion is resonating with customers.

Oracle's third quarter results are expected to be a strong follow-up to the second quarter, which fared well. Analysts are optimistic largely because Oracle has ramped its selling machine and believe that Fusion is resonating with customers.

Wall Street is looking for Oracle to report non-GAAP earnings of 66 cents a share on revenue of $9.38 billion for the third quarter. Oracle's fourth quarter is also expected to be solid, but the outlook may be hampered due to currency exchange rates, said analysts.

Morgan Stanley analyst Keith Weiss said in a research note that the quarter should be led by:

  • More sales capacity;
  • Fusion upgrades and vertical apps;
  • Oracle's marketing suite;
  • More powerful Exadata systems.

More:  Oracle rolls out its Database Appliance X3-2  | Oracle pans Forrester Fusion report, launches rebuttal  |  Oracle's customers a bit baffled by Fusion strategy, says report  |  Oracle's cloud: Top marks for effort, but no straight A's  |  Oracle's budget flush comments cheer software sector


Weiss also noted that Wall Street is only looking for 4 percent to 5 percent organic license growth.

The most debatable point in Weiss' assumptions may be his view of Fusion upgrades. Oracle has also gobbled up cloud companies and enterprises are also evaluating other software as a service rivals such as Salesforce and Workday. Meanwhile, Forrester Research panned Fusion only to have Oracle fire back. 



Wells Fargo analyst Jason Maynard, however, is also on the Fusion bandwagon. He said:

Our thesis is that Oracle can grow the topline organically in the high-single digit range and with some acquisitions, margin efficiency and buybacks deliver mid-teens EPS growth. During the quarter we continued to hear progress on three important fronts. First, there appears to be more customers going live on Fusion apps. This helps drive add-on sales and new logos as both salespeople and customers have confidence in the new product line. Second, Oracle has been more effective at messaging the cost benefits of its Exasystems products. In our view this value proposition resonates in an environment where companies are still trying to save money. Third, we continue to see Oracle adding sales capacity.

Evercore analyst Kirk Materne echoed the bullishness on Fusion.

We believe Oracle continues to see steady progress in terms of moving customers onto its Fusion application platform, with HCM being the strongest module. While competitors such as Workday continue to win deals, we believe Oracle’s ability to defend its customer base in areas like HCM is improving and that the focus on international markets is helping Oracle get in front of some competitors that do not have the same distribution reach in areas like Latin America and Asia Pacific.

Materne said he also expects Oracle's hardware business to turn the corner in the fourth quarter.

But not all analysts are completely upbeat. Ross MacMillan, an analyst at Jefferies, said Oracle's overall license growth will be about 9 percent, but that's due to acquisitions Eloqua, Rightnow, Taleo, Vitrue and Skire.

MacMillan said that app growth is slow but middleware and database remain solid. Overall, MacMillan isn't as upbeat as other analysts. He said:

We continue to believe that core database faces headwinds from growth in SaaS applications, fragmentation of the database market (open source, in-memory, unstructured) and at the margin new competition (e.g. SAP). We also think engineered systems have limited use cases in new data center architectures and that the apps business faces ever greater competitive threats.