Oracle Slumps After Missing Revenue Estimates: 7 Key Takeaways

Though its accounting may have changed, Oracle's (ORCL) sales numbers still paint a messy picture.

After the bell on Monday, Oracle reported August quarter (fiscal first quarter) revenue of $9.19 billion (up 1% annually) and non-GAAP EPS of $0.71. EPS, which benefited from restrained spending and a whopping $10 billion worth of stock buybacks, beat a $0.68 consensus. However, revenue missed a $9.24 billion consensus that had already been lowered on account of the guidance Oracle issued in June.

Moreover, on the earnings call, co-CEO Safra Catz guided for November quarter revenue to be flat to up 2% annually in constant currency (CC). With Catz indicating forex is currently a 2% headwind to revenue growth, the outlook suggests revenue will be flat to down 2% in dollars, which is below a consensus for 1.6% growth. EPS guidance of $0.77 to $0.79 compares with a $0.79 consensus.

Oracle did nonetheless maintain its forecast for CC-based fiscal 2019 (it ends in May 2019) revenue growth to be higher than fiscal 2018's 3% growth. And for fiscal 2019 EPS to grow at a double-digit rate.

Oracle's shares fell 1.5% on Tuesday to $48.43. 

Here are some takeaways from Oracle's report and call.

1. There Isn't Enough Transparency

As Oracle signaled on its June call, the company is no longer breaking out its cloud app (SaaS) and cloud app platform and infrastructure (PaaS and IaaS) revenue by themselves. Instead, those revenue streams are grouped together with Oracle's traditional software license update and support revenue in a "cloud services and license support" revenue line. It was up 3% annually to $6.61 billion, and missed a $6.68 billion consensus.

Meanwhile, all of Oracle's software license revenue, whether it involves traditional or cloud-based license deployments, is grouped within a "cloud license and on-premise license" revenue line. It was down 3% to $867 million, but slightly beat an $865 million consensus.

SaaS revenue accounted for the lion's share of Oracle's cloud revenue back when the company was breaking it out. And now, as Oracle's applications franchises continue seeing stiff competition from SAP (SAP) , Salesforce.com (CRM) , Workday (WDAY)  and a slew of others, there's no way on knowing exactly what SaaS revenue looks like.

2. Software Sales Continue to Underperform

Though a lot of specifics are unknown, Oracle's numbers do make it clear that its total software-related revenue, which covers licenses, cloud subscriptions and support services, is seeing minimal constant currency-based growth. The growth rate trails what Microsoft (MSFT) and SAP are seeing for their enterprise software revenue streams, never mind the strong double-digit growth that firms such as Salesforce and Workday continue to post.

Oracle's software growth is also lower than the growth seen in total enterprise software spending. Before the dollar began to weaken some, research firm Gartner forecast enterprise software spend would rise 11.1% this year.

3. There Were Some Silver Linings, However

Co-CEO Mark Hurd did indicate on the call that Oracle's PaaS bookings grew at a mid-20s percentage, and (without sharing a number) that its SaaS bookings growth accelerated sequentially on an annual run rate basis. He also stated that Oracle's Fusion ERP cloud app revenue rose 40% organically, and that its midmarket NetSuite ERP business saw 26% revenue growth and 39% bookings growth.

Also mentioned: Oracle's database license and database support revenue each rose at mid-single digit rates. The recent rollout of Oracle's 18c database, whose automation features Oracle has gone to great lengths to promote, is providing a boost for now.

4. Hardware and 'Services' Remain Weak

Though many IT hardware peers are reporting solid numbers as an Intel (INTC) server CPU upgrade cycle makes itself felt, Oracle's hardware revenue fell 4% to $904 million, albeit while topping an $876 million consensus.

The company's "Services" revenue, which doesn't include cloud services and software update/support revenue, fell 5% to $813 million. That's below an $827 million consensus.

5. Larry Ellison Is Still Taking (Questionable) Shots at Amazon

Though Oracle's Iaas/PaaS revenue is still (from all indications) a tiny fraction of Amazon Web Services's (AWS), Larry Ellison couldn't help but take fresh shots at Amazon.com ( AMZN) . Though Jeff Bezos and quite a few research firms may beg to differ, Ellison insisted on the call that Oracle is "way ahead of Amazon in cloud infrastructure technology," and that it's well-positioned to gain IaaS share "very, very rapidly."

Ellison also favorably compared Oracle's latest database with Amazon's Aurora database (offered via AWS), and reiterated that Amazon uses Oracle's databases to help run its business. That last assertion might not stay true for long: CNBC reported in August that Amazon, perhaps hoping to deny Ellison a talking point, "plans to be completely off" Oracle's database software by the first quarter of 2020.

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6. Expect Large Buybacks to Continue

In the wake of last quarter's heavy buyback activity, Oracle has added another $12 billion to its buyback authorization, raising its total authorization to around $20 billion.

Catz noted on the call that Oracle has used buybacks to cut its share count by 8.5% over the last 12 months, and suggested the company won't be shy about aggressively using its current authorization. "[A]t these prices, with our growing cash flows, with our earnings growing like they are, it seems like an amazing deal to buy our stock," she asserted.

7. Oracle Expects a Senior Exec on Leave to Return

Recently, Thomas Kurian, who as Oracle's President or Product Development has played a major role in its cloud R&D efforts, disclosed that he's taking "extended time off from Oracle." Not long afterwards, Bloomberg reported that disagreements with Larry Ellison are responsible for Kurian's leave of absence: Kurian, unlike Ellison, wants Oracle to take a page from rivals and allow more of its software to run on Amazon and Microsoft's public clouds.

When asked about Kurian on the call, Hurd insisted Kurian's departure isn't expected to be a permanent one. "Thomas is a good guy, works awful hard. He's taking a break and we expect him back," he said.

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