Testing Oracle's New Tactics

Updated from 7:08 a.m. EST

Dana Investment Advisors manages some $2.3 billion in funds for its clients. None of it is invested in Oracle(ORCL Quote). "We're not real fans of growth by acquisition," says portfolio manager Duane Roberts. "They run the risk of the winner's curse -- paying too much."

Roberts' distaste for Oracle's recent bout of M&A fever is far from universal. But when the database giant reports third-quarter financial results after the market close Tuesday, Wall Street will be looking hard for indications that its $10.3 billion takeover of PeopleSoft is starting to pay off.

To be sure, the total amount of cash the PeopleSoft business will contribute to the February quarter isn't enormous. The defunct company would have closed its quarter at the end of December, which means that with the exception of a few business days in December, Oracle will get the benefit of only two months of revenue. Additionally, January and February were the old company's slowest sales quarters.

Even so, says Tony Ursillo, an analyst with Loomis Sayles, "the PeopleSoft application business will be a key focus; people are curious about how much license revenue it generated."

Said another sell-side analyst: "You can't spend $10.3 billion and not show something for it."

Estimates of license revenue, a good indicator of new business growth, are widely divergent, ranging from about $15 million to $90 million. The brutal fight with Oracle hit PeopleSoft's final quarters. But looking back to the third quarter of 2003, when PeopleSoft posted $160 million in license revenue, may give investors a better measuring stick. Total revenue in that quarter was $624.1 million.

The other big component of PeopleSoft's income statement was maintenance revenue, which is likely to range from $150 million to $200 million. However, under accounting rules related to acquisitions, it will be written down and recognized ratably in the future. Therefore, Oracle will present a pro forma revenue number that includes the maintenance fees and a GAAP number that doesn't. Most analysts will add back amortization, which brings First Call consensus to 15 cents a share pro forma.