NEW YORK (TheStreet) -- I had to offer an immediate apology following Oracle's (ORCL) - Get Report weaker-than-expected June quarter and what culminated in a disappointing end to an otherwise solid fiscal year.
While I'm not assuming blame for Oracle's underperformance, I share in the responsibility
to a level that Oracle couldn't deliver. But that's in the past.
On Wednesday, the database giant, which saw its stock plummet 9% immediately following the June announcement, will have some making up to do. After two consecutive quarters of lackluster sales, Oracle must prove to investors that these recent notions of "underlying fundamental issues" present at the company, are a myth. And Oracle's case needs to be convincing, especially given how well rivals such as
To that end, I'm looking for significant improvement, not only in Oracle's overall revenue growth, but also in new software licenses and cloud software subscriptions. By "significant," I mean growth in the area of 3.5% to 4%. Posting growth of less than 1% just isn't going to cut it, especially when it missed management's own guidance.
While I will agree that the Street's reaction, and the stock's subsequent 9% decline, was completely overblown, Oracle may have had it coming. As noted, the March quarter, during which revenue fell 1%, wasn't any better. And as fundamentally solid as Oracle has always been, the Street has also demonstrated very little patience for underperforming mature companies.
By contrast, and in the case of Workday and Salesforce.com, the Street is more than willing to reward incredible growth stories with outrageous valuations.
Also, Oracle certainly didn't help itself by issuing lower-than-expected guidance for the current quarter, on which it will report Wednesday. The Street will be looking for EPS of 54 cents on revenue of $8.48 billion, which represents revenue growth of 3.3%.
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Clearly, the Street is not as optimistic as my projections. Citing
as providing better SaaS, or software-as-a-service, Oracle is said to be unprepared for the shift seen in enterprise, in terms of how IT companies procure strategic service initiatives. Although Oracle hasn't had any "blowout" quarters of late, to the extent that the company has been significantly outperformed by IBM and SAP, I disagree.
However, I do believe that Oracle's total addressable market, which also includes software, hardware and services, is now in transition. To that end, the Street seems to have completely ignored Oracle's recent transactions, including the company's
and also buying network vendor Tekelec shortly thereafter.
Clearly, management has never gotten the credit it deserves for diversifying the business. And contrary to popular opinion, I don't believe that Oracle's soft patch has been a situation where the company is falling behind in the cloud and/or succumbing to pressure. Nor am I ready to buy the notion that the cloud/Big Data market has suddenly become saturated.
The question is, how well can Oracle execute its own changeover without disrupting its core software/cloud businesses? The Street also assumes that management won't be able to effectively integrate and synergize both Acme Packet and Tekelec. For any other company, this would be a tall order. But given Oracle's strong history of execution, that the Street is pricing the stock as if Oracle will fail is misguided.
So I wouldn't abandon the stock just yet, especially when the company just announced a $12 billion share buyback program, while also increasing the dividend by 100%. At around $33 per share, I believe this is still one of the best companies on the market. And the company's strong cash position will continue to present management with plenty of options and opportunities to grow its market. Bet against CEO Larry Ellison at your own peril.
At the time of publication, the author held no position in any of the stocks mentioned
This article was written by an independent contributor, separate from TheStreet's regular news coverage.
Richard Saintvilus is a co-founder of
where he serves as CEO and editor-in-chief. After 20 years in the IT industry, including 5 years as a high school computer teacher, Saintvilus decided his second act would be as a stock analyst - bringing logic from an investor's point of view. His goal is to remove the complicated aspect of investing and present it to readers in a way that makes sense.
His background in engineering has provided him with strong analytical skills. That, along with 15 years of trading and investing, has given him the tools needed to assess equities and appraise value. Richard is a Warren Buffett disciple who bases investment decisions on the quality of a company's management, growth aspects, return on equity, and price-to-earnings ratio.
His work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets.