Oracle slumped after forecasting slowing sales growth in cloud-related products, fuelling concern that the company is struggling in efforts to shift away from traditional software and become a powerhouse in programs delivered over the internet.
The stock was hit with downgrades from a number of analysts following the results, with those at Bank of America shifting from Buy to Neutral. Oracle's shares were down 8.4 per cent during early trading on Tuesday in New York.
Under Mark Hurd and Safra Catz, who share the chief executive officer title, Oracle has bet its future on a new version of its database software that automates more functions and a growing suite of cloud-based applications.
Results
Last quarter's results were a reminder that the company still faces stiff competition from cloud vendors including Amazon. com, Microsoft and Salesforce. com .
"They missed the cloud number, which is the key to this transition story," said Pat Walravens, an analyst at JMP Securities LLC. "Investors were expecting strength in new licenses, and that decreased. This is a quarter when Salesforce and Adobe told you that IT spending was strong, but Oracle hasn't benefited from that."
Sales of cloud products will rise 19 per cent to 23 per cent in the current quarter, compared with 32 per cent in the period that ended February 28th, Oracle said on Monday. Adding to concerns, demand for new software licenses in the recent quarter declined 1.8 percent to $1.39 billion from a year earlier.
The company’s strategy of letting customers choose to house software on their own servers or with Oracle, as a bridge to the cloud, also lost traction in the quarter, exacerbating worries about the company’s pivot to internet-based products.
To bolster its cloud business, Oracle has invested in new data centers to support existing client workloads, and it has made acquisitions, such as last month’s purchase of security startup Zenedge .
Total fiscal third-quarter revenue rose 6.1 per cent to $9.77 billion, in line with what analysts had estimated. Profit, excluding some items, was 83 cents a share, 11 cents higher than predicted, according to data compiled by Bloomberg.
Profit
Oracle projected profit, excluding some costs, of 92 cents to 95 cents a share in the current quarter, compared with analysts’ estimates of 90 cents. Revenue should grow 1 to 3 percent, the company said.
Oracle’s shares fell to a low of $48.15 in extended trading after closing at $51.95 in New York. The stock has gained 14 percent in the past 12 months.
While Oracle’s cloud unit has grown in recent quarters, its sales made up just 16 percent of the company’s total quarterly revenue.
The older software-license business still dominates with $6.42 billion in sales, or two-thirds of revenue. Revenue from software updates and product support to existing customers grew 5.6 percent to $5.03 billion.
Oracle maintained its shareholder dividend of 19 cents a share. The Bloomberg dividend forecast was 22 cents. The company took a one-time charge of $6.9 billion because of changes to the U.S. tax code approved in December. Excluding some items, Oracle said its effective tax rate was 16.1 percent in the quarter, compared with 21.6 percent a year earlier. The company projected it would pay 19.5 percent in taxes in the 2019 fiscal year.
In its shift to the cloud, Oracle has tried to leverage its longstanding ties to large enterprises, buying and cultivating products for specific industries. Investors have been bullish on the company’s success in targeting financial services firms. Its broader strategy for applications has focused on covering as much ground as possible -- offering products to manage relationships with clients, handle human-resources tasks and organize corporate spending, which has sparked competition with newer software companies Salesforce and Workday Inc.
Oracle's database software has long been a bedrock part of its business. Co-founder and chairman Larry Ellison beat back the notion that the product is an old offering.
Legacy
"Our license technology business is not a legacy business," Mr Ellison said on a call with analysts. "These licenses are going to be used and are being used more and more in modern clouds, not just the Oracle Cloud, but our competitors' clouds as well." He cited Salesforce, SAP SE, Microsoft and Amazon as major clients.
Oracle has sought growth from its new “Autonomous Database,” which can patch its own technical issues and run without a human staff. Ellison called it “the most important thing Oracle’s ever done in terms of data management” and said it was faster than Amazon’s competing product.
Oracle announced plans to open a dozen new data-center “regions” around the world last month, mostly to support its existing database business. The regions would feature two or three facilities apiece in locations including the U.S., China and Saudi Arabia -- quadrupling the current facilities of this type, according to the company’s website.
“A lot of this is about extending our global reach, getting into more locations, particularly where we have huge database infrastructure,” co-CEO Hurd said at a Goldman Sachs-hosted conference last month.
- Bloomberg
