Oracle shares tank: what just happened?

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).

Bottom line

Oracle’s dip in its share price may prove temporary. Wary investors may continue to sell shares to book profits, but Oracle’s fundamentals are still strong. Investors who do not holding position in the company might want to add Oracle to their watch list.

As for cloud software companies in general, the sector remains a bright spot in tech. Investors should not expect the weak performance for these companies to last too long.

 

Do you think the Oracle is a prophet of gloom, or a profitable enterprise? Use the links below to start your own research.

Click on the interactive chart to view data over time. 

 

1. Salesforce.com ( CRM, Earnings, Analysts, Financials): Provides customer and collaboration relationship management (CRM) services to various businesses and industries worldwide. Market cap at $38.38B, most recent closing price at $63.91.

 

 

2. Oracle Corporation ( ORCL, Earnings, Analysts, Financials): Develops, manufactures, markets, distributes, and services database and middleware software, applications software, and hardware systems worldwide. Market cap at $172.96B, most recent closing price at $38.14.

 

 

3. Rackspace Hosting, Inc. ( RAX, Earnings, Analysts, Financials): Operates in the hosting and cloud computing industry. Market cap at $4.83B, most recent closing price at $34.55.

 

Kapitall Wire is a division of New Kapitall Holdings, LLC. Kapitall Generation, LLC is a wholly owned subsidiary of New Kapitall Holdings, LLC. Kapitall Wire offers free investing ideas, intended for educational information purposes only. It should not be construed as an offer to buy or sell securities, or any other product or service provided by New Kapitall Holdings, LLC, and its affiliate companies.

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