Oracle Misses Expectations But The Bulls Hang Around

By the time the bell rang to end Thursday’s session, shares of tech giant Oracle (NYSE: ORCL) were up more than 4% from Wednesday’s close. This undid most of Wednesday’s dip and almost puts the stock above where it was trading before the company released its fiscal Q4 earnings on Tuesday evening.

The results had come in a little light so it’s been a busy week for both the bulls and the bears as they wrestle for control of Oracle’s next move. Even though EPS came in above analyst expectations, revenue missed the consensus and posted a contraction of 6% year on year. The bulk of the revenue miss was seen in their cloud services as well as their cloud and on-premise license businesses even as their HR platform, Fusion HCM, saw its revenue grow 27% year over year.

Considering how well the tech space has been performing in recent weeks, Wall Street will have been disappointed with these numbers from one of the biggest players in the industry. Unfortunately, it’s not the first time the company has missed analyst expectations in recent quarters.

Coronavirus Blamed

Still, there were definitely some positives to be taken from the numbers, such as operating income increasing and non-GAAP EPS growing 9% year on year. For their fiscal year 2020, total revenues were down 1% and essentially flat in constant currency. On the whole and considering the coronavirus pandemic’s effect on the economy, this mightn’t be such a bad result.

CEO Safra Catz spoke to this when she said “our results would have been even better except for customers in the hardest-hit industries that we serve such as hospitality, retail, and transportation postponing some of their purchases. Still, for the third year in a row, we delivered double-digit constant currency earnings per share growth in FY20."

Range Bound

For the most part, investors are buying into the optimism and not punishing the company too much for the miss. While many tech names would have been taken down for not hitting double-digit percentage revenue growth, coronavirus or not, Oracle has found a consistent source of buyers around the $51 mark in recent weeks as well as in recent days.

This means that shares are still trading in a narrow range that goes back to 2019, save for a breakout to the north during last summer and a breakout to the south last quarter. To the upside, the bulls are going to have to fight hard to get above $56-57 a share, a level they’ve consistently been unable to break through and hold for more than a year. It will probably take a few quarters of positive revenue growth to justify a sustained move higher.

Patience Needed

It remains to be seen how quickly Oracle can get back to positive growth and it feels like a lot will depend on the coronavirus pandemic continuing to recede as economies and businesses stagger back to life. The street has shown that while it will reward promise and internal momentum, it doesn’t have much patience for $170 billion companies that are just treading water.

The reality is that Oracle stock is only up 20% over the past five years and is still transitioning many of its legacy customers to the cloud. Stifel Nicholas struck a cautious tone in the aftermath of Tuesday’s report in the face of what they called a “nearly insurmountable lead” that Amazon (NASDAQ: AMZN) and Microsoft (NASDAQ: MSFT) in that space. As they noted, Oracle's annual capital expenditure in the hyperscale cloud space is equal to about one month’s worth of Microsoft’s capital expenditure on the same.

So while the company is finding buyers for now, earnings miss or not, they’re also in a race against time to get back to running with the bulls or they’ll start to lose their own.