Oracle Misses on High Expectations - Analyst Blog

Legacy tech giant Oracle Corp. ORCL reported fiscal 3rd quarter 2014 earnings after the bell Tuesday, and after having traded a few weeks at levels not seen since the early 2000s, missed on both top and bottom lines. Oracle reported earnings per share EPS of 64 cents (accounting for stock-based compensation) on revenues of $9.3 billion in the quarter.

Neither headline number was a huge miss, but as expectations had been growing that Oracle's strategy of acquiring cloud-based startups on its software side and pent-up demand would start to see enterprises buying more Oracle product on the hardware side, investors had tended to look at CEO Larry Ellison's company with rose-tinted glasses. And hardware's 8% improvement in revenues was better than expected, though software licenses and cloud subscriptions were up only 4%, below estimates.

As a result, after regular-day trading gains of about 1.7%, ORCL shares have tumbled 5%. It's safe to say those rose-colored glasses have now come off.

Not that Oracle is showing many signs of changing strategy anytime soon: at the tail end of its Q3 (ended February) Oracle purchased cloud-based big data firm BlueKai, merely the latest in a string of smaller acquisitions made by the company. Of course, on the hardware side Oracle had purcxhased Sun Microsystems, but that was now four years ago.

Oracle currently has a Zacks Rank #4 (Sell). With no dividend hike depicted in the initial Q3 earnings announcement and plenty of competition from Microsoft MSFT, IBM IBM, etc., it would appear there is little to sustain its share price at or near 52-week highs, at least for the time being. That said, Oracle is not particularly expensive at 12x forward earnings, it does seem to be staying competitive in the cloud space, and sooner or later enterprises are going to start buying hardware again.

Depending on what analysts' outlooks are going forward, this may be an interesting time to keep an eye on ORCL stock.