Oracle's Roar Turns To A Whimper (NYSE: ORCL)

Shares of software giant Oracle NYSE: ORCL were under continued pressure on Monday as the selling from last week’s earnings refused to let up. After reporting a miss on revenue following the close of Thursday’s session, traders took the stock down 2% in after-hours trading. It gapped down at the open on Friday and by yesterday’s close was down a full 5% from pre-earnings levels.

The weakness will be a bitter pill for investors to swallow as the stock looks set to finish 2019 on a whimper despite having started out the year so strong. A blistering first 4 months had shares up 30% from last December’s lows through April but it’s been a lackluster 8 months since then. Their underperformance is made all the more obvious when compared against the tech-heavy Nasdaq index which is up over 40% in 2019; more than double Oracle’s return.

Warning Signs

It was the second quarter in a row that revenue missed analyst expectations. And not only did they miss expectations, but they also registered practically no growth compared to the same time period last year. Oracle sticks out like a sore thumb in this regard when compared against the headline numbers posted by the likes of Adobe NASDAQ: ADBE and Microsoft NASDAQ: MSFT who can both boast of double-digit percentage growth year on year in the revenue department and many others.

To be fair to management, in their March report they did warn Wall Street about the potential for 2019 to end weakly when they lowered forward guidance. Investors were also warned by the likes of Macquarie, Nomura and DZ Bank who all hit the stock with downgrades at various points during the year. On top of this, there were negative headlines in February when Warren Buffet’s firm Berkshire Hathaway NYSE: BRK.A announced they were unloading a stake in Oracle they’d only taken at the end of 2018.

It seems the company is struggling to adapt to the cloud infrastructure the way some of the other big names in tech are. For example, on Monday we wrote about Adobe’s successful transition to the cloud and how that was a big factor in their 22% year on year revenue growth.

Oracle needs to adapt and adapt fast. To that end, they announced in October their plans to hire 2,000 employees to help roll out their cloud computing services around the world along with a goal to expand on the number of ‘cloud regions’ they operate. It was to this initiative that their CTO, Larry Ellison, spoke to after Thursday’s release; "it's still early days, but the Oracle Autonomous Database already has thousands of customers running in our Gen2 Public Cloud. Currently, our Autonomous Database running in our Public Cloud business is growing at a rate of over 100%. We expect that growth rate to increase dramatically as we release our Autonomous Database running on our Gen2 Cloud@Customer into our huge on-premise installed base over the next several months."

Technical Troubles

The results of these initiatives will play out over the coming months but the short term doesn’t look pretty. Crucially, shares have crossed under both their 50-day moving average and 200-day moving average in the last two trading sessions alone and there’s little reason to expect them catching a bid this side of the new year. Investors could see the stock trickle down towards $50 where the first real levels of support are. This offered stubborn resistance each time shares tried to poke through in the past 3 years and the bulls will be hoping it can lend its weight to their cause now.

After setting all-time highs as recently as July, shares are now down 10% from those levels which is more telling than the fact that they remain up 20% for 2019 to date. It looks like the stock is starting to print lower highers rather than the other way around. With zero growth happening in their revenue as the S&P 500 and NASDAQ indices continue to notch regular all-time highs, investors will be wondering what’ll happen to Oracle shares if the market takes a dip. If they’re already becoming unattractive, that can only increase in a risk-off environment.