Stocks of international software company, Oracle Corp (ORCL.N), fell by 4.8% recording the biggest price decline in almost two years after reporting revenue and profit figures below analysts’ estimates.
The stocks closed at $42.74 on Thursday, following the company’s report of earnings after the close of regular U.S. trading on Wednesday.
Oracle reported a decline in revenue of 5.4% to $10.7 billion for the period ended May 31 while profits before certain costs were 78 cents per share. Analysts had projected revenue of $10.69 billion and a profit of 87 cents according to data compiled by Bloomberg. Fourth-quarter net income fell to $2.76 billion from $3.65 billion in the previous year, the report added.
In keeping with other software manufacturers such as the German company SAP, sales have been negatively affected in falling demand for customer management software with many users moving to cloud-based services.
In addition to falling software sales, the company said dollar (USD) strength also had a negative impact on the value of income earned outside of the U.S. Without this, revenue would have increased by 3 percent, supporting the company’s view that the push into cloud services will make up for any slowdown in its traditional business of software sales.
Brent Thrill, an analyst at UBS AG, who has a buy rating on the stock had this to say, “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.” He added that while a company is going through a transition as Oracle it, it is very difficult to maintain high numbers as it is likely then to miss these targets as Oracle has done in 4 out of the last six quarters. As Thrill explained, “You don't hear the pure cloud companies say this.”
Oracle Chief Executive, Samantha Catz, forecast profit before certain costs of 56 to 59 cents per share without currency fluctuations, accompanied by a growth in sales of 5 to 8 percent. The company said it would no longer include the effect of foreign exchange rates in its forecasting, a shift away from generally accepted accounting principles.
The traditional approach of selling accounting and other business management software is rapidly being overtaken by companies such as Salesforce.com Inc., Workday Inc. and other cloud-computing service providers. Oracle has concentrated on the race to beat rivals SAP and International Business Machines Corp. while losing sight of the challenge presented by the pure cloud-computing companies.
The decline of 17% in software licensing sales to $3.14 billion is a reflection on Oracle’s ability to sell new software products and service. Adjusted for currency, the drop in sales was 10%. Revenue from software license updates and product support was unchanged at $4.69 million, or up 8% without currency fluctuation. Hardware division sales fell by 4%. In contrast to these figures, cloud division sales grew by 28% to $576 million, offsetting some of the decline in the other divisions.
Highlighting the big difference to revenue between software sales that bring in immediate income and cloud sales which are paid for monthly over the life of the contract, Chief Executive Catz said, “Cloud revenues and cloud bookings mean significantly more in revenues and earnings over time. We would much rather have a cloud booking for a million dollars than a new license deal and we are pushing that.”
MT4 Chart: Oracle