Oracle Profit, Sales Miss Estimates

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Oracle Disappoints: Are Currencies Really to Blame?

Oracle Corp. shares fell the sharpest in almost two years after fiscal fourth-quarter revenue and profit fell short of analysts’ estimates, hurt by currency fluctuations and sagging sales to new and existing customers as buyers move to cloud-based products.

The stock fell 4.8 percent to close at $42.74 Thursday, the steepest decline since June 21, 2013. Oracle reported earnings after the close of regular U.S. trading on Wednesday.

Revenue declined 5.4 percent to $10.7 billion in the period through May 31, and profit before certain costs was 78 cents a share, Redwood City, California-based Oracle said in a statement Wednesday. Analysts on average projected sales of $10.9 billion and profit of 87 cents, according to data compiled by Bloomberg.

Like other multinational software companies, Oracle has been hurt by foreign-exchange volatility, with a stronger dollar eroding the value of income earned abroad. Without this, revenue would have climbed 3 percent, Oracle said, bolstering the company’s argument that the push into cloud services will make up for any slowdown in its traditional businesses.

“They had a massive forex headwind but they are also dealing with an old-school perpetual licensing business shifting to the cloud -- it’s hard to juggle both,” said Brent Thill, an analyst at UBS AG. He has a buy rating on the stock. “Everyone knows they’re going through a transition. You can’t guide high numbers and keep missing them. They’ve effectively missed four of the last six quarters. You don’t hear the pure cloud companies saying this.”

Cloud Shift

Fourth-quarter net income fell to $2.76 billion from $3.65 billion a year earlier.

For the current fiscal quarter, Oracle Chief Executive Officer Safra Catz forecast profit before certain costs of 56 cents to 59 cents a share in constant currency, and sales growth of 5 to 8 percent. The company didn’t give a projection that included the anticipated effects of foreign-exchange rates, and said it’s no longer going to give forecasts based on generally accepted accounting principles.

Oracle has been overhauling its products so that computing power and storage can be delivered over the Internet. The company has lagged behind Salesforce.com Inc., Workday Inc. and other cloud-computing competitors, while racing to beat established rivals such as SAP and International Business Machines Corp.

While getting customers to pay monthly for computing services can deliver stable sales down the road, companies that have made the transition -- such as Adobe Inc. -- have seen their immediate income slump due to lower one-time sales of software products.

New Licenses

That was reflected in the latest quarter, with Oracle reporting a 17 percent decline in sales of new software licenses to $3.14 billion, which reflect how well the company was able to sell new products and services. Adjusted for currency moves, the drop in sales was 10 percent.

Money from software-license updates and product support was flat at $4.69 billion, or up 8 percent in constant currency. Revenue in the company’s hardware division declined 4 percent. Oracle’s cloud division grew sales by 28 percent to $576 million, helping to make up for declines in other divisions.

“Cloud revenues and cloud bookings mean significantly more in revenues and earnings overtime,” Catz said.

A $1 million licensing deal is worth about $3 million over ten years, compared with about $10 million for an equivalent cloud deal, she said. In the short term, Oracle’s earnings will dip because cloud revenue is booked across the lifetime of the contract rather than as a big upfront lump sum, she said. Still, Oracle still has to bear the upfront cost of compensating a sales person for making a big cloud sale.

“We would much rather have a cloud booking for a million dollars than a new license dollar and we are pushing that,” she said.

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