Morgan Stanley On Oracle: 'Hurdling A Low Headline Bar For Q4'

Morgan Stanley’s AlphaWise Oracle Customer Survey demonstrates “steady momentum” within Fusion Apps, “although the 12c database cycle dynamics appear more muted.”

Morgan Stanley’s Keith Weiss maintains an Equal-Weight rating on Oracle Corporation ORCL, with a price target of $41.

Muted Expectations

Weiss expects new ARR and cloud billings growth to be the key areas of focus in 4Q, “as investors gauge the depth of Cloud transition.”

Related Link: What Are The 5 Biggest Internet Buyouts Of All Time?

Given the “shaky” 4Q results in recent years, the analyst believes investor expectations seem to be muted heading into Oracle’s earnings announcement later in the week.

“Focus is centered on the $1.5 billion new Cloud Annual Recurring Revenue (ARR) target, as well as, performance of SaaS/PaaS billings growth trends vs 32 percent reported in Q3,” Weiss mentioned.

Declining Growth

However, the analyst expressed concern regarding both the quarter-on-quarter and year-on-year growth trends for Cloud ARR.

In addition, Weiss pointed out that SaaS/PaaS billings growth has declined significantly in Q3 to 32 percent, following the 68 percent growth in Q2 and 70 percent in Q1.

“There are a number of reasons that could explain the growth decline, including a shallower than expected Cloud transition,” according to the Morgan Stanley report.

Given the decline in SaaS/PaaS billings growth, Weiss expects Oracle to pullback on cloud-related investments, while noting that cloud revenues were currently a relatively small mix of the total revenue.