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Oracle earnings seen rising
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December 13, 2000: 6:38 p.m. ET
Oracle earnings expected to rise 66 percent on 15-16 percent revenue increase
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NEW YORK (CNNfn) - Database and corporate applications software giant Oracle Corp. is expected to post a 66 percent increase in earnings per share when it reports its fiscal second quarter results after the close Thursday.
Securities analysts expect Oracle's (ORCL: Research, Estimates) second-quarter earnings to rise to 10 cents per share from 6 cents in the same period last year, while revenue is expected to rise 15-16 percent to around $2.7 billion from $2.5 billion in last year's period.
Analysts expect strong demand for Oracle's database software, which will also drive demand for database consulting services. Oracle's earnings have grown at a much higher percentage rate than its revenue because the company's operating margins have expanded dramatically. CIBC World Markets analyst Melissa Eisenstat expects the company's operating margin to rise to 31 percent in the second quarter, from 25 percent in the same period last year and 29 percent in the first quarter.
"Oracle continues to be a margin expansion story and we expect that trend to continue this quarter," Eisenstat said in a recent research note. "We expect the increased operating leverage to come in the form of lower sales and marketing expenses."
Applications revenue to be tracked closely
Analysts will pay close attention to Oracle's sales of non-database applications. The company has a product line called the e-Business Suite that contains components for financial management, manufacturing, procurement, human resources, and marketing, among other areas. The e-Business Suite competes against software products from PeopleSoft (PSFT: Research, Estimates), SAP (SAP: Research, Estimates), i2 Technologies (ITWO: Research, Estimates), and Siebel (SEBL: Research, Estimates), to name a few.
"Our model forecasts applications license revenue growth of 55 percent and database license revenue growth of 18 percent," said Merrill Lynch analyst Chris Shilakes in a recent research note. "We expect Oracle to deliver applications growth consistent with our model and database growth in-line to slightly better than our projections."
"Applications growth will again be a key focus for investors, although it contributes 25 percent of license revenue at present," Shilakes added. "We understand Oracle landed a couple of large deals in the quarter, perhaps $20 million in size, so there is some traction here."
When California-based Oracle reported its fiscal first-quarter results on Sept. 15, its applications revenue increased 42 percent to $156 million, while database software sales grew 32 percent to $585 million. Analysts had expected the company's applications revenue growth to be as high as 60 percent. The slower-than-expected expansion caused Oracle's stock to drop 8 percent on Sept. 16 "After a slip up in the fourth quarter, database license revenue jumped through the roof, while applications license growth did not reach the highs we had hoped for," Lehman Brothers analyst Neil Herman in a research note issued Sept. 16. "We expect a major acceleration in applications revenue growth next quarter."
Management changes
Over the past six months, Oracle has sustained two major executive departures, despite its rapidly growing revenue and earnings.
In mid-November, Oracle executive vice president Gary Bloom left the company to join Veritas Software as its president and chief executive officer. Bloom was viewed as a potential heir apparent to Oracle Chief Executive Larry Ellison, although Ellison is expected to hang around the company he founded for many years to come. Bloom, 40, led Oracle's core database business and was involved in the execution of its Internet and e-business efforts.
Raymond Lane, Oracle's president and chief operating officer, left in July to become a partner at the venture capital firm Kleiner, Perkins, Caufield & Byers.
"Bloom's exit coming at the heels of COO Ray Lane's departure leaves only Ellison with the kind of universal clout to call on senior executives at Fortune 500 companies to deliver Oracle's suite message," said CIBC World Markets' Eisenstat. "We think that the leadership question increases the risk to the story."
Oracle's stock closed down $2.37 at $28.37, an 8 percent loss on the day. 
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