Don’t Read Too Much Into Oracle’s Great Results

The Bottom Is In For Cloud-Stock Oracle 

Oracle’s (NASDAQ: ORCL) Q4 results were fantastic and indicate a bottom is in for the stock. This news is being hailed across the cloud-computing industry as the sign of a broader bottom but we don’t think you should read too much into the news. While Oracle gave a much better than expected report and provided some positive guidance it doesn’t mean the strength will spill over into other stocks. 

Oracle’s strength was driven primarily by a few very large deals that suggest to us the big boys are winning but maybe the smaller players won’t. Among these deals is one with Salesforce.com which is a leader in cloud-based services and it won’t be spreading its money too widely, especially if it can get the same services in one location. The takeaway is that Oracle is set up for another few quarters of strong growth but we aren’t betting on any other companies just yet. 

Oracle Beats And Raises 

Oracle had a great quarter with revenue rising 5.4% YOY to $11.84 billion beating the Marketbeat.com consensus by $0.190 or about 160 basis points. Strength was centered in the cloud with total cloud revenue up 19% YOY and 22% in constant currency. Cloud Infrastructure led with a gain of 36% followed by a 27% gain in Netsuite and a 20% increase in Fusion ERP. Moving on to the income, the margin new is a little mixed in that GAAP and adjusted margins were both impacted by FX translation that led to a contraction at the GAAP level. On an adjusted basis, the operating margin improved by 3% headline and 8% on an FX neutral basis. 

The guidance is good as well with Q2 expectations for revenue and earnings above the consensus forecast. The company is expecting revenue to decline slightly on a sequential basis but to rise 20% to 22% versus last year. This puts revenue in a range of $11.64 to $11.83 compared to the consensus of $11.32 billion and the EPS range is just as good. Adjusted earnings are expected in a range of $1.09 to $1.13 versus the $1.08 consensus and there is upside risk. Assuming the other large players such as Salesforce.com continue to solidify their respective positions we see Oracle raising guidance again later in the year. 

The Analysts Aren’t All That Excited About Oracle’s Results 

As good as Oracle’s results and outlook are, the analysts are not that excited by them. So far, we’ve seen two analyst commentaries that refer to the results as “solid” yet come with no upgrade nor price target increase. What we did get was one price target set at $80 which is well below the $94 Marketbeat.com consensus estimate and another target lowered to $72. This activity has the consensus target relatively flat over the past 90 days but with a downward bias. The upshot is the consensus is still about 35% above the price action, the risk is that low-end targets have the stock trading at fair value with downward pressure on the high-end of the range to cap any gains. 

The Technical Outlook: Oracle Hits Bottom 

Oracle’s correction hit a bottom just prior to the Q4 report and is now up more than 10% from that level. The move signals a reversal in price action that may lead shares higher but we aren’t betting on it now. The next target for firm resistance is just above the new price point at the $75 level and it may be very strong because this level is coincident with the 150-day moving average and previous support. If the market can not get above this level we see it ranging between $65 and $75 for the near to short-term. If price action can get above $75, however, it may move all the way up to the $90 level. 

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