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Oracle shares slip after falling short of Wall Street's fiscal 1Q sales estimate

Oppenheimer analysts says Oracle's business 'got off to a slow start in its fiscal first quarter'

Oracle headquarters
On an adjusted basis, the enterprise software company earned US$0.71 on revenue of US$9.19bn

Shares in Oracle (NYSE:ORCL) slipped in Tuesday’s pre-market session after the software company sent a signal that it is having a tough time migrating to cloud computing by falling short of Wall Street’s estimates for sales in its fiscal first quarter.

On an adjusted basis, the Redwood Shores, California-based company earned US$0.71 per share on revenue of US$9.19bn. Analysts had expected Oracle to report profits of US$0.69 per share on revenue of US$9.28bn.

In response, Oracle shares dropped by 4.4% to US$47.00 before the opening bell on Tuesday.

Revenues from its cloud services and license support group, the engine driving most of Oracle’s business, jumped just 3% from last year to US$6.61bn, missing the consensus estimate of US$6.7bn. Sales from its cloud license and on-premises license business, meanwhile, came in at US$867mln, down 9% from the US$894mln in sales seen in the year-ago quarter.

The take away from Oppenheimer analysts was that Oracle’s business “got off to a slow start in its fiscal first quarter with the cloud business results and fiscal second-quarter guidance below Street estimates”.

Oracle has taken criticism from Wall Street analysts who say the tech company’s migration to the cloud is taking longer than expected as the company struggles to compete against rivals like Amazon.com, Microsoft and Salesforce.com.

“We caution investors getting involved in bottom-fishing Oracle shares in the hopes for outsized returns, because the company’s cloud transition has come too late, resulting in steady customer and workload attrition to competitors,” wrote Oppenheimer analysts Brian Schwartz, Tyler Page and Koji Ikeda in a note to investors.

But CEO Mark Hurd said Oracle reaped the benefits in the quarter of its customers buying the Oracle Fusion Enterprise Resource planning system to replace their existing SAP and Workday ERP Systems. “The vast majority of ERP applications running in the cloud are either Oracle Fusion or Oracle NetSuite systems,” said Hurd.

Nearly 5,500 customers are now using the Oracle Fusion system while the number signed up for NetSuite ERP is over 15,000, according to the company.

Looking ahead, the company expects revenue to be flat to up 2% in the second quarter and see earnings of US$0.78 to US$0.80.

The team of Oppenheimer analysts expect Oracle’s appetite for acquisitions to “remain voracious”. “[T]here’s almost nothing they won’t buy,” they wrote, adding that they still see the software maker as a defensive stock in a negative macro-economic environment given its earnings resilience.

Revenue from Oracle's hardware sales came in 10% lower from last year at US$904mln in the three-month period until August 31 while sales from services fell 9% to US$813mln.

In the quarter, Oracle tacked on another US$12bn to its buyback authorization, which lifts its full authorization to about US$20bn.

-- updated with analyst commentary from Oppenheimer--


Quick facts: Oracle Corporation

Price: 55.45 USD

Market: NYSE
Market Cap: $177.86 billion

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