Oracle Pursuing 'Generational' Change In IT, Cantor Says - Oracle (NYSE:ORCL)

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In a report published Thursday, Cantor Fitzgerald analysts Brian White and Isabel Zhu share some thoughts about Oracle Corporation (NYSE: ORCL) following a couple of investor meetings with CEO Mark Hurd and Ken Bond of investor relations.

Oracle's Forward View

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The experts left feeling optimistic about the company’s cloud initiatives. When management started talking about transitioning to the cloud 12–18 months ago, investors and experts were skeptical. However, cloud bookings have been surprising recently, and the company remains confident in the trajectory of its cloud business – which specifically focuses on Software-as-a-Service (SaaS) and Platform-as-a-Service (PaaS) – going forward.

Oracle conceives this “push of IT resources into the cloud as a ‘generational change’ that only comes along once every 20–25 years,” the analysts at Cantor explain. This is why management is working hard in expanding the cloud business.

Analysts' Input

However, the experts believe this change will be particularly complicated for Oracle, given that it “continues to offer on-premise solutions,” and holds a broad portfolio of solutions across a wide array of product categories. Therefore, the company “does not want to provide a particular timeframe for when the headwind from the transition is over,” the analysts explain, but management is “unrelenting in its view that the shift to the cloud is positive for the long-term economics of Oracle's business model.”

Given that the ramp of Oracle’s SaaS portfolio started considerably ahead of PaaS, it’s the unpredictability of the PaaS ramp that worries the company. While the SaaS business is, at the time, substantially larger than the PaaS business, management expects PaaS to be bigger in the long run, “given the company's sizable database and middleware businesses,” the report explains.

Cantor maintains a Buy rating and $48.00 price target on shares of Oracle.

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