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Will Oracle’s Fiscal 3Q16 Results Fall Short of Expectations?

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Market expectations for Oracle’s fiscal 3Q16 results

Oracle (ORCL) is scheduled to report its fiscal 3Q16 earnings on March 15, 2016. Analysts are expecting Oracle to post revenues and non-GAAP (generally accepted accounting principles) EPS (earnings per share) of $9.2 billion and $0.62, respectively.

Oracle, like its peers in the enterprise software space, including IBM (IBM) and Microsoft (MSFT), is finding it difficult to report revenue growth. In the past seven quarters, including fiscal 2Q16, Oracle’s revenues have missed analysts’ expectations six times.

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Oracle’s cloud offerings are expected to gain traction

Oracle’s Software segment and Services revenues were flat on a constant currency basis. Its Hardware revenues fell by 10% in fiscal 2Q16. Oracle’s cloud revenues, which are comprised of SaaS (Software as a Service), PaaS (Platform as a Service), and IaaS (Infrastructure as a Service), grew to $649 million. The segment grew by 36% on a YoY (year-over-year) basis in fiscal 2Q16 on a constant currency basis.

In fiscal 2Q16, Oracle’s SaaS and PaaS billings grew 68% compared to their revenue growth of 34%. Oracle previously said that it expected SaaS and PaaS revenues to grow 49%–53% in fiscal 3Q16. Although Oracle’s SaaS and PaaS billings have exceeded revenue growth, the company’s cloud revenues in fiscal 2Q16 still only contributed 7.2% to overall revenues.

Salesforce (CRM) dominates the PaaS and SaaS spaces. Amazon (AMZN) is the undisputed leader of the overall cloud space.

Investors who wish to gain exposure to Oracle could consider investing in the Technology Select Sector SPDR ETF (XLK). While XLK invests ~3% of its holdings in Oracle, it also has an exposure of 31% to application software.

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