Oracle Corporation Is At Risk From Competitors Like Salesforce

"As an enterprise IT incumbent with a large installed client base, Oracle is at risk from smaller and faster cloud services specialists, including Salesforce.com. We are also concerned about the potential vulnerability of Oracle's core database software offerings," analyst Joseph Bonner wrote in a note.

Related Link: Oracle Continues To Struggle Despite Upbeat Commentary From Management

The comments came after Oracle missed the low end of its fiscal first quarter EPS guidance range by a penny and the consensus forecast by $0.03 on higher interest payments from a June debt offering, higher tax rate and Brexit-related currency headwinds. Shares of Oracle fell nearly 5 percent after the earnings release.

The analyst wondered if the company's lukewarm results reflect the transition to cloud-based services or the loss of market share to competitors.

Oracle reported SaaS/PaaS cloud bookings growth of 42 percent in the first quarter, which is strong but slower than in previous quarters. Despite "encouraging" growth in cloud-based bookings, Bonner is skeptical over how much of this growth "will translate into higher profitability given the cannibalization of on-premise license revenue and the faltering Hardware Systems segment."

Oracle management claims that since the cloud businesses are subscription-based, they recognize revenue over time. However, the analyst noted that this contrasts the immediate recognition of traditional upfront licenses and "is likely to remain a sales headwind."

"Although currency headwinds have begun to dissipate, the company's transition to a cloud-based subscription-as-a-service business model may continue to limit profit growth in FY17," Bonner added.

Bonner, who has a Hold rating on the company's shares, cut his FY17 EPS estimate to $2.62 from $2.75 and FY18 forecast to $2.84 from $2.93.

At the time of writing, shares of Oracle were up 0.95 percent to $39.29.