Oracle's Cloud Growth in Fiscal 3Q16 Conquered a Strong Dollar
By Anne Shields (Market Realist) • Mar 17, 2016.
As scheduled, Oracle (ORCL) reported its fiscal 3Q16 earnings on March 15, 2016. The
company posted revenues and non-GAAP (generally accepted accounting principles)
EPS (earnings per share) of $9.0 billion and $0.64, respectively. Oracle’s fiscal 3Q16
revenues failed to meet analysts’ expectations by $110 million. However, EPS beat
analysts’ estimates by $0.02. Shares of ORCL finished up 1%.
On a YoY (year-over-year) basis, Oracle’s fiscal 3Q16 revenues and EPS fell by 3% and
6%, respectively. In the past seven quarters, including fiscal 3Q16, Oracle’s revenues
have missed analysts’ expectations. Fiscal 3Q16 marked the fourth straight quarter for a
fall in EPS.
Oracle’s top-line growth gets impacted by strong dollar
As expected, the dollar continued to impact the company’s performance. During 3Q16,
the USD showed a small appreciation (0.7%), but, on YoY basis, the USD appreciated by
7.4% against a trade weighted basket of currencies. Oracle’s revenue fell 3% to $9.0
billion. On a constant currency basis, it grew 1%. Its EPS was impacted by $0.04 in
3Q16.
In 3Q16, Oracle generated 55% of its revenue from North America and Latin America, as
the below chart shows. The remaining revenues came from the EMEA (Europe, the
Middle East, and Africa) region and the Asia-Pacific region, including Australia, India,
and South Korea (EWY).
Symantec (SYMC), Microsoft (MSFT), and IBM (IBM) are other tech players that derive
a majority of their revenues from outside the United States. As a result, their top lines get
majorly impacted by an appreciating USD. In fact, the strong USD is bad news for the
entire technology sector, as the majority of technology companies derive most of their
revenues from outside the United States.
US dollar is expected to stay strong in the near future
As expected, easing of the monetary policy by the ECB (European Central Bank) helped
the dollar in March 2016. A week ago, ECB president Mario Draghi surprised global
markets by announcing a cut in interest rates and deposit rates. ECB also expanded the
quantitative easing program to 80 billion euros from 60 billion euros.
The Fed’s two-day policy meeting started on March 15, 2016. This meeting was expected
to provide a clue about when the next interest rate hike could occur and thus the direction
of the dollar in the long term. The dollar already rose in anticipation of positive news at
the Fed meeting and is expected to continue rising. According to Andrew Sheets, an
analyst at Morgan Stanley, “We remain in a structural bull market for the U.S. dollar,
which has a further 10-15% to go.”