Oracle Still Needs To Work On Its Cloud Opportunity

Oracle Corporation ORCL reported its Q2 revenue slightly below expectations, impacted by FX headwinds. The company’s initiatives to drive infrastructure cloud growth could result in some gross margin compression in the near term, Wunderlich’s Ryan MacDonald said in a report. He maintains a Hold rating on the company, with a price target of $43.

Oracle has been focused on its transition to the cloud, and acquired NetSuite Inc during the quarter. This enabled the company to achieve strong SaaS and PaaS growth of more than 80 percent. “While ORCL's initiatives in the cloud remain promising, we remain cautious as the legacy business continues to weigh down the company,” analyst MacDonald commented.

Q2 Results

Oracle reported revenue of $9.07 billion, down 1 percent year-over-year. The figure missed the consensus estimate of $9.11 billion, with a 1 percent negative impact from FX. EPS came in at $0.61, ahead of the consensus of $0.60, despite the currency headwind, MacDonald mentioned.

Total cloud revenue was reported at $1.1 billion, up 62 percent year-over-year, driven largely by SaaS and PaaS revenues, which grew 87 percent year-over-year. SaaS and PaaS billings grew 39 percent to $377 million.

Oracle’s heavy investments to drive infrastructure cloud growth could exert pressure on gross margin in the near term, the analyst stated. He reduced the revenue and EPS estimates for the year from $38.037 billion to $37.373 billion and from $2.80 to $2.56, respectively.

At last check, shares of Oracle were down 3.74 percent at $39.31.