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Oracle Corporation

Oracle will no longer disclose its cloud revenue and analysts aren’t happy about it

The tech company will be combining cloud revenue with on-premise support revenue

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Wedbush analysts downgraded the shares to Neutral from Outperform

Oracle Corporation (NYSE:ORCL) announced its fourth-quarter results after the bell, beating Wall Street estimates on earnings and revenue.

The tech company reported earnings of US$0.82 per share on revenue of US$11.25bn compared with US$0.76 on revenue of US$10.89bn in the previous year’s first quarter.

The California-based company beat Wall Street revenue estimates of US$11.18bn and reported adjusted earnings of US$0.99 versus estimates of US$0.94 per share.

Yearly revenue came in at US$39.8bn, in-line with analyst expectations.

Adjusted earnings per share for the year were US$3.12 per share, surpassing analyst estimates of US$3.08.

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"Looking ahead to FY19, I expect revenue growth will enable us to deliver double-digit non-GAAP earnings per share growth once again," said Oracle CEO Safra Catz.

The company did not provide specific details regarding its forecast for the year ahead in the release but did address it in the earnings call.

Oracle forecasted first-quarter earnings to be between US$0.67 and US$0.69 per share, falling below consensus estimates of US$0.72 EPS.

The company said that cloud revenue will become a larger percentage of its overall revenue. However, Oracle will no longer disclose its cloud revenue going forward and instead will combine it with on-premise support revenue.

Analysts weigh in on Oracle

Despite the earnings beat, Wedbush analysts aren’t so sure that the company can successfully transition to the cloud.

The company’s decision to no longer disclose cloud revenue going forward didn’t help to instill confidence. While analyst Steve Koenig believes the forecast for double-digit EPS growth is credible, he said that there are “easier ways to make money in software than waiting for a turn-around at Big Red.” Koenig also suspects more aggressive buybacks going forward.

Shares have been downgraded to Neutral from Outperform with a lowered price target of US$49 from US$55.

JPMorgan also had concerns about the company’s decision to keep its cloud revenue under wraps, believing it to be one of the key metrics to gauge the transition. Analyst Mark Murphy said the results “invite more questions than answers short term,” according to a research note shared by The Fly.

The analyst maintained a Neutral rating with a price target of US$53.

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Deutsche Bank analysts also chimed in to admonish Oracle for its disclosure decision, calling it a mistake, according to a note shared by The Fly. Analyst Karl Keirstead believes that limiting cloud visibility is a negative and maintained a Hold rating on the shares.

Jeffries analysts foresee investors approaching the company with caution now that there will be less revenue disclosure, according to a note shared by The Fly. Analyst John DiFucci doesn’t think investors will give the company the benefit of the doubt until sustainable sales growth equals sustainable free cash flow growth.

The analyst did look on the bright side, stating that Oracle has "turned a corner and will progress in the right direction from here." He maintained a Buy rating on the shares with a US$61 price target.

Shares of the cloud company fell nearly 4% to US$44.45 in Wednesday pre-market trading.

 

--Updated to include analyst perspective and share price

Quick facts: Oracle Corporation

Price: $53.75

Market: NYSE
Market Cap: $179.3 billion
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