Skip to main content

Did Oracle whiff?

Oracle released earnings after the close today. The stock immediately fell several percent after hours. Was the sell-off justified?

The company indicated that profit rose 4% which was in line with analyst estimates. The top line, however, was a source of concern for investors.

The following chart shows Oracle's three primary revenue sources.

Oracle Revenue Sources, F1Q2010
(Data courtesy of Gridstone Research and Seeking Alpha)

As usual, the Updates and Support category showed sequential growth albeit very modest growth. This number includes the software maintenance revenue that tends to provide a solid underpinning to many enterprise software companies.

The bad news kicks in when we look at the other two revenue sources. Services has been a huge money maker for companies like IBM and HP. Investors were not pleased to see that Oracle's Services revenue declined to levels not seen since 2007.

Worst of all, revenue from New Software Licenses fell to $1 billion, below analyst expectations and down to levels last seen back in 2006. This is serious because it's the new licenses that lead to new support contracts which are the cash cows of the software industry. New licenses are the harbingers of growth.

While we have recently seen other tech companies show the kind of growth that indicates the worst is behind us (think IBM, Intel, Cisco), Oracle's contrasting drop in new license revenue is alarming.

So did Oracle whiff? Today's quarterly results feed the bear case that says that enterprise demand has not yet returned and that the rally in tech is over-done. Bulls might say that this is company specific. In any case, don't be surprised if tech lags tomorrow. On the other hand, don't be surprised if the entire market falls and analysts point to Oracle as a catalyst.

Disclosure: no positions

Comments

Sean said…
Hi, I’ve started to put together a few bits and pieces on spread betting if anybody is interested Trading Spreads any comment of feedback would be much appreciated

Sean :)

Popular posts from this blog

Brazil - in a bubble or on a roll?

A couple of years ago, no one recognized the real estate bubble even though it was under everyone's nose. Now, analysts and bloggers are seeing bubbles everywhere they look. One of them, they say is in Brazil whose Bovespa stock market index has doubled in the last 12 months. Does the bubble accusation hold water? I don't think so and here are 7 reasons why Brazil is by no means a bubble economy: Exports have held up over the past year thanks to demand from China for Brazil's soya exports and iron ore. This was helped by the the Brazilian government's drive to improve trade links with Asia and Africa. Export diversification, spurred by a more active trade policy and increased focus on "south-south" trade under current president Lula, helped mitigate the decline in demand from OECD (Organization for Economic Co-operation and Development) countries A "sensible" economic framework has been in place since the 1990's. This has included inflation

Trade Radar gets another update

Some of our data sources changed again and it impacted our ability to load fundamental/financial data. In response, we are rolling out a new version of the software: 7.1.24 The data sourcing issues are fixed and some dead links in the Chart menu were removed. So whether you are a registered user or someone engaged in the free trial, head over to our update page and download the latest version. The update page is here:   https://tradingstockalerts.com/software/downloadpatch Contact us if you have questions or identify any new issues.

Interactive Ads - Google one-ups Yahoo again

Google's ( GOOG ) press release describing the expansion of a beta program for what are being called Gadget Ads has again shown that Google is unparalleled at melding technology and advertising to benefit its bottom line. Gadget Ads are mini-web pages or "widgets" that can be embedded within publisher pages. I have written in the past on Yahoo's ( YHOO ) Smart Ads and how, by more precisely targeting site users and adjusting ad content accordingly, they provide a much desired evolution of the banner or display ad format. Though Smart Ads and Gadget Ads are not really the same, I think it is fair to say that Google has seen the challenge of Smart Ads and has chosen to leapfrog Yahoo by rolling out its own update to the display ad format. The evolution of the Gadget Ad -- One of the trends on the Internet over the last year or so involves software developers creating "widgets" which can be hosted within web pages and blogs. Widgets can be pretty much anything