Don’t Judge Oracle Corporation on Earnings Alone
By almost all accounts, Oracle Corporation (NYSE:ORCL) should have been shoved to the back of the proverbial shelf by now, with corporations opting for newer and more relevant choices from outfits like Amazon.com, Inc. (NASDAQ:AMZN) and Microsoft Corporation (NASDAQ:MSFT).
Yet, there it is. Not only are revenue and income (more or less) on the mend, ORCL stock is up an impressive 31% for the year so far. Not bad.
The $65 billion dollar question: Was it just a stroke of luck, or is the database giant actually relevant again? We’ll know more after Thursday’s close, when the company unveils its fiscal second-quarter numbers.
InvestorPlace - Stock Market News, Stock Advice & Trading Tips
Even if the numbers look good though, there’s still not a lot of hope, or reason, to choose Oracle stock over others in the business.
Oracle Earnings Preview
As of the most recent look, the pros are calling for income of 68 cents per share on sales of $9.57 billion for the quarter ending in November. Both are better than year-ago comparisons, though not leaps and bounds so. It’s difficult for a company of this size to log significant growth, however, in any given quarter.
Oracle grew its top and bottom line in 2014 by continuing to do what it had been doing for years. Once cloud computing hit a critical mass in 2015, though, it was clear the company wasn’t ready; its on-premise business just wasn’t holding up well enough.
CEO Mark Hurd has since put the company back on a more competitive path, though it’s still trailing better-equipped players in this all-important arena. While analysts are more or less expecting progress down the road, that progress isn’t ironclad, nor is it guaranteed to happen immediately … if it happens at all.
Too Many Threats
A little more than a month ago, UBS lowered its stance on ORCL stock to “neutral.” While analyst Jennifer Swanson Lowe acknowledges the shift toward cloud-based offering is the right move, she also fears the market is underestimating the risks involved in such a paradigm shift. Namely, margins could be crimped.
Problem is, at a trailing price-earnings ratio of 21.9, Lowe feels the stock is priced for a perfect execution of that plan — there’s no room for error.
And UBS’ Lowe isn’t the only observer that has concerns about fading margins. Zacks said something similar recently, as did RBC Capital Markets’ Ross MacMillan.
Current owners of ORCL stock only have to take a passing glance at the database landscape to recognize the threats Oracle is facing. Late last month, Amazon Web Services bolstered its offering by unveiling Neptune and Aurora Serverless. The former is a managed graph database, while the latter allows for cost-effective use of a database where constant connectivity isn’t necessary.
For better or worse, Oracle Chairman Larry Ellison said he would offer database warehousing at half or less than the cost of Amazon’s cloud services, setting the stage for the very margin problems MacMillan and Lowe cautioned investors about.
Meanwhile, Microsoft’s cloud-computing interface, Azure, continues to attract new customers. This is particularly true of Azure SQL (structured query language), which steps directly onto Oracle’s legacy products’ turf.
Looking Ahead for ORCL Stock
In this light, Thursday’s report may not be so much about the numbers but about the convincing argument Hurd and Ellison are able to make about Oracle’s competitiveness going forward.
It’s finally moving toward cloud-centric services, but it’s late to the party, and thus far doesn’t offer anything particularly special in that arena.
Two big hot buttons that could differentiate Oracle from others? Blockchain, for one. A recently wrapped-up project with Hyperledger has now become a revenue-bearing product.
The other potential game-changer on Oracle’s radar is the autonomous cloud-based, A.I. database product Ellison vowed would be much cheaper than Amazon’s similar offering.
Investors are going to have more than a few things to think about on Thursday. Just bear in mind the knee-jerk reaction might not be the one that persists for more than a day.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @jbrumley.
More From InvestorPlace
Before Buying Shopify Inc Stock, Check Out These 3 Companies
10 Super Safe Growth Stocks to Buy for Long-Lasting Dividends
The post Don’t Judge Oracle Corporation on Earnings Alone appeared first on InvestorPlace.
