Oracle Corporation (NYSE:ORCL) and its Software-as-a-Service unit is too reliant on existing customer migrations, according to Jefferies analysts.
Despite expectations for a rebound in the second quarter following a seasonally weak first quarter, Oracle reported disappointing results with revenue coming in at $12.9 billion, a 4% year-over-year increase but falling short of the Street's estimate of $13.1 billion.
As a result, Jefferies cut its price target on Oracle’s stock to $122 from $132, citing greater risk to the software giant’s 2026 targets.
Particularly concerning to analysts was Oracle's cloud growth, which at 24% was below the guided range of 29-30% year-over-year. This is in contrast to other cloud vendors in the market who are exceeding expectations, emphasizing a potential challenge for Oracle in the competitive landscape.
“The cloud shortfall to guidance raises some concern, in an environment where other cloud vendors are exceeding,” Jefferies analysts noted.
“In the applications business, Fusion and NetSuite (NYSE:N) growth decelerated when competitors are holding or accelerating. We believe this validates our view that Oracle's SaaS business is reliant on existing customer migrations (from legacy on premise e-business suite, PeopleSoft) as opposed to new application growth.”
Oracle's overall revenue growth projection of 7% falls short of the 9% annual growth needed to reach the target of $65 billion in revenue by the fiscal year 2026, analysts noted.
The company is facing challenges in boosting revenue due to ongoing commitments to maintain older software licenses and hardware services, which are slowing down overall growth.
That said, there is some positive news with increased interest from Microsoft in the new partnership with Oracle's Database on Microsoft's Azure platform. However, this collaboration comes with a downside – Oracle has to invest in building 20 new data centers to support the increased demand, incurring additional costs in the process.
Shares of Oracle lost 12.4% on Tuesday by the close of trading.