Oracle Stock Plunges on Underwhelming Earnings -- but Don't Sell Yet

Oracle stock is falling after the company's fiscal Q4 report. Here's what investors need to know.

Jun 19, 2014 at 7:17PM

Oracle stock

Oracle headquarters in Redwood City, CA, Credit: Wikimedia Commons.

Oracle Corporation (NYSE:ORCL) just became the second-largest cloud software-as-a-service company in the world; but that's little consolation to its shareholders right now. Oracle stock is currently down 7% in after-hours trading following the release of its fiscal fourth-quarter 2014 results.

So, what happened? First, quarterly revenue rose just 3%, to $11.3 billion, missing Wall Street's expectations for sales of $11.48 billion. Meanwhile, Oracle's adjusted earnings per share fared slightly better, increasing 6%, to $0.92. To its credit, Oracle notes this figure would have been $0.94 per share had it not been for non-operating losses caused by exchange-rate changes in Venezuela. But even then, the tech giant still would have fallen short of analysts' estimates, which called for earnings of $0.95 per share.

It wasn't all bad
But that doesn't mean there weren't bright spots. Remember, Oracle's software business -- which comprised nearly 79% of all revenue last quarter -- is in the midst of a transition away from upfront perpetual license payments. Instead, Oracle is moving toward a cloud-based subscription model, under which revenue is recognized over the life of those subscriptions. This may cause a temporary lull in top-line growth, but over the long-term should result in an even stronger, more predictable revenue stream.

And Oracle's already off to a great start. For perspective, its combined Software and Cloud revenue rose only 4% last quarter, to $8.9 billion. Within that, however, it saw adjusted platform- and software-as-a-service revenue grow an impressive 23%, to $327 million. In addition, Oracle's cloud infrastructure-as-a-service revenue grew 13% during the same period, to $128 million. All told, that means Oracle's cloud subscription businesses are collectively approaching a run rate of $2 billion per year.

These are fightin' words ...
In fact, according to Oracle CEO Larry Ellison, Oracle is now ahead of every other company in the SaaS market except Salesforce.com. And in IaaS, he notes that Oracle is "larger and more profitable" than Rackspace. Then, after boasting that Oracle has the "most complete portfolio of modern SaaS and PaaS products in the industry," Ellison asserted, "We plan to increase our focus on the Cloud and become number one in both the SaaS and the PaaS businesses."

That's not to say Oracle's competitors will just roll over and let it easily steal market share. But as impressive as it stands today, Oracle's cloud-based revenue still represents just a small fraction of its overall base. Call me crazy, but when this $190 billion tech titan decides to really buckle down and hone its focus on growing its cloud offerings, I wouldn't want to be on the other side of the table.

Warren Buffett's biggest fear is about to come true
Speaking of fast-growing tech, Warren Buffett just called this emerging technology a "real threat" to his biggest cash cow. While Buffett shakes in his billionaire boots, only a few investors are embracing this new market, which experts say will be worth more than $2 trillion. It won't be long before everyone on Wall Street wises up; that's why The Motley Fool is releasing this timely investor alert. Click here to learn more about what's keeping Buffett up at night, and the one public company we're calling the "brains behind" the technology.

Steve Symington has no position in any stocks mentioned. The Motley Fool recommends Rackspace Hosting and Salesforce.com. The Motley Fool owns shares of Oracle. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers