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TheStreet Open House

Oracle shares tank: what just happened?

Stocks in this article: CRMORCLRAX

By Chris Lau for Kapitall.

It is never a good feeling for investors when stock gains for the year to date get wiped away on a single day. That is exactly what happened for Oracle (ORCL) shareholders. After reporting quarterly results that missed analyst expectations, shares dropped sharply. Should investors be wary of this database giant? Is caution warranted for cloud software companies in general?

Oracle’s results miss

Oracle reported quarterly license revenue that missed estimates. Oracle earned $0.92 per share, missing estimates by three cents. Revenue was $11.32 billion, missing estimates by $160 million. The firm forecast revenue would grow in its Q1, by between 4% and 6%. Earnings are forecast to be $0.62 – $0.66 per share. Revenue growth is projected to come from the license and cloud segments. By contrast, hardware systems revenue could be flat.

New Oracle Database launch

Despite the setback, investors could look forward to the release of Oracle 12c. Historically, customers upgraded to newer versions of the database. This would mean revenue growth for Oracle in future quarters.

Alternative Investments

Revenue and profit growth for Oracle depends on demand for cloud solutions. The firm is not alone in awaiting a rebound in the sector. Rackspace Hosting Inc. (RAX) reported a weak quarter recently, which led to a drop in its shares.

Rackspace sells web-based hosting solutions. Oracle needs to include remote hosting in its product sales to stay competative.

Salesforce.com Inc. (CRM) is another cloud computing services company investors could consider. The software giant is ahead of the curve in offering cloud based solutions.

Investors should note that shares of Salesforce.com are expensive. They also offer no dividend, compared Oracle’s 1.18% dividend yield (based on a recent closing price).

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