Oracle Plunges: What Wall Street's Saying

Updated from 9:14 a.m. to include thoughts from Sterne Agee analyst.

NEW YORK (TheStreet) -- Oracle (ORCL) shares plunged in premarket trading on Friday as the company missed Wall Street estimates for both earnings and revenue, despite becoming "the Second Largest Cloud SaaS Company in the World," according to the company's press release.

Fiscal fourth-quarter earnings came in at 92 cents a share, as the company generated $11.31 billion in revenue, up just 3.4% year over year. The company noted that revenue for software and cloud, its biggest segment, came in at $8.9 billion, up 4% year over year, aided by software-as-a-service (SaaS) and platform-as-a-service (PaaS) revenue, which rose 25% to $322 million. Its two biggest components of this segment, new software licenses and software license updates and product support revenue, came in at $3.8 billion and $4.7 billion, respectively.

Analysts surveyed by Thomson Reuters were expecting the Redwood City, Calif.-based Oracle to earn 95 cents a share on $11.48 billion in sales.

Shares were falling 5.6% to $40.12 in early Friday trading.

As the world moves toward cloud computing, CEO Larry Ellison noted Oracle is now the second-largest cloud company in the world, presumably only behind Salesforce.com (CRM), which was mentioned in the press release.

"In SaaS, we're in front of everybody but salesforce.com," Ellison said in the release. "In IaaS we're larger and more profitable than Rackspace. We have by far the most complete portfolio of modern SaaS and PaaS products in the industry: CRM: Sales, Service & Marketing; HCM: HR, Payroll & Talent; ERP: Accounting, Procurement, Supply Chain & more. All these SaaS products run on the world's most powerful PaaS: the Oracle in-memory multitenant database and Java. We plan to increase our focus on the Cloud and become number one in both the SaaS and the PaaS businesses."

The company also announced Friday morning it has signed an agreement to acquire LiveLOOK, which provides real-time, "visual collaboration technology for co-browsing and screen sharing."

Though Oracle is focusing on becoming a cloud computing company, it still has legacy hardware from its Sun Microsystems acquisitions, something the company noted is now profitable and growing.

"We have transformed Sun's commodity hardware business into a profitable and growing Engineered Systems business," said Oracle President Mark Hurd in the press release. Overall hardware systems revenue rose 2% year over year to $1.5 billion; hardware systems products revenue was $870 million, while hardware systems support revenue was $596 million.

For the first quarter of fiscal 2015, Oracle said it expects revenue will rise between 4% and 6%, and expects to earn between 62 cents and 66 cents a share. Analysts surveyed by Thomson Reuters forecast the company to earn 64 cents a share.

Despite the miss, analysts by and large seemed to be positive on the company's prospects, noting 2015 is expected to be an even better year, as the company becomes the largest software-as-a-service company in the world. Here's what a few of them had to say.

Cantor Fitzgerald analyst Brian White (Buy, $50 PT)

"Last night, Oracle reported 4Q:FY14 results that were slightly below our estimates; however, the company's 1Q:FY15 guidance is largely in-line with our projections. The company emphasized a big push into the cloud in FY:15 with a "laser focus" on becoming the #1 player within Software-as-a-Service (SaaS) and Platform-as-a-Service (PaaS) in the future. With the early stage ramp of a database cycle with 12c and new initiatives in the cloud that we expect to hear more about at next week's Cloud Forum, we continue to believe the stock has attractive upside over the next year, as reflected in our $50.00 price target."

Canaccord Genuity analyst Richard Davis (Buy, $48 PT)

"Numbers wise, Oracle posted a 3% upside to operating cash flow. Inasmuch as Oracle does not pay a tolling fee for its database to itself, Oracle will have more pricing cushion with
which to compete. Perhaps more importantly, the breakout of cloud will make it financially less disruptive for Oracle to accelerate the pace of tuckin cloud acquisitions."

BMO Capital Markets analyst Joel Fishbein (Outperform, $45 PT)

"Fourth-quarter softness appears to be the result of thousands cuts-some deal slippage on mixed sales execution, some potential pausing in front of the 12c launch, some weakness in APAC and headwinds related to currency devaluation in South America, some hardware deal push-outs, some incremental headwinds to license as mix to subscription accelerates-but overall the story is unchanged, in our view. Transitions of this scale take time and some pains and lose ends may persist but most of the heavy lifting regarding the SaaS business is done. New product releases across the board should be a tailwind to growth and we remain optimistic regarding the company's positioning."

Oppenheimer analyst Brian Schwartz (Perform, No PT)

"Oracle reported soft 4Q results for the second straight year partially owing to delayed revenue recognition from selling more cloud software than licenses. This trend aligns with our view that market fundamentals for SaaS adoption have never been better from business desires to replatform apps. Additionally, FY EPS growth came in below 10% for the second straight year, a key growth target for investors, despite easier comparisons and better macro. This result pushes ORCL's 3-year EPS CAGR also below 10%." 

Sterne Agee analyst Robert Breza (Neutral, $41 PT)

"ORCL put out a disappointing Q4/FY14 that may leave investors cautious about future results as Q1/FY15 outlook, roughly in line with consensus, came short of offsetting the miss in the top and the bottom lines and may remind investors of Q3. We continue to believe ORCL's new 12c database release with in-memory and multi-tenancy capabilities will allow for an execution in-line with guidance, and therefore maintain Neutral Rating and $41 PT."

Larry Ellison Wants to Make Oracle King of the Cloud 

Alibaba, China Mobile Push for More of World Cloud Computing Market

-- Written by Chris Ciaccia in New York

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