Oracle Corp. (ORCL) has their worst drop on Friday after more than 4 years. Oracle became the stock that performed the worst on the S&P Index when it dropped 7.7% to $48.74. This drop occurred within hours of the earnings report for the first fiscal quarter of the year 2018.
This drop occurred just after the company hit a record high on Thursday, just before the earnings report was publish. Oracle prices touched a record high of $53.67 after hours on Thursday.
When the report was released the company revealed net income for the first quarter at $2.21 billion (52 cents/share), versus $1.83 billion (43 cents/share) in the same period the previous year. Revenues were also up to $9.19 billion from $8.6 billion in the previous year.
With the overall earnings for the first quarter slated to go up, the stock prices still dropped sharply. This is because analysts had predicted a 4.7% growth in the second fiscal quarter, but the company co-CEO Safra Catz revealed that the company’s fiscal growth would be between 2% to 4%. The co-CEO explained that profits were going to be tight because of ongoing investments made to build Oracle’s cloud-computing infrastructure. Oracle forecast that second quarter earnings were going to be between 64 and 68 cents per share with revenues between $9.25 billion to $9.43 billion, vis-à-vis analysts’ expectations of 68 cents/share or above, with revenue generation of about $9.56 billion.
The good news was that cloud computing revenue increased to $1.8 billion. While the company’s cloud computing revenue went up by 51% in the previous quarter, the problem is that this segment still contributes only 15% of the overall revenue ($9.19 billion). The majority of the tech giant’s revenue is still generated from other sources; one of the biggest contributors being NetSuite which the company acquired last year. The on-premises software revenue fell further to $5.92 billion.
The company also stated that future growth will come from internally developed technologies. Larry Ellison, Oracle’s Founder and Chairman, commented that “there was no one left to buy” when asked about future acquisition strategies.
Some analysts were pessimistic about Oracle being able to meet the projected revenues on their cloud-computing business. According to Patrick Walravens, analyst at JMP, the company’s cloud computing revenues for the second fiscal quarter would be around $1.53 billion to $1.58 billion. This prediction is well below the majority market expectation of $1.61 billion.
Walravens stated that Oracle’s been talking about transitioning to cloud computing and that outlook did not come up to expectations. He cut down his estimate of the company’s full year earnings. From $3.01 earlier, the analyst said he expected the earnings to be in the region of $2.96.
The analyst also said that currently, Oracle’s major revenue – 44% – comes from the platform and infrastructure as services businesses. So he doubts whether the company will be able to maintain its profitability with competition like the tech giants like Microsoft, Amazon and Alphabet.
Another objection he had was the lack of transparency Oracle has displayed about its cloud bookings. Earlier the company used to provide a dollar break down of the bookings, but this year, it only mentioned that bookings went up by 40%.
With the exception of this one naysayer, the rest of the analysts still love Oracle. Of the 36 analysts that cover Oracle, an overwhelming 26 gave the company an “Overweight” rating. 9 gave a “Hold” rating. Only 1 gave the company a “Sell” rating. Analysts still feel that is company is a solid investment despite short term transitional turbulence.