Oracle Co. (ORCL) Given a $51.00 Price Target by Sanford C. Bernstein Analysts

23 Dec 2015 | Author: | No comments yet »

Oracle Shift to Cloud Products Hasn’t Yet Spurred Growth.

Oracle’s fiscal second-quarter profit declined 12 percent to $2.2 billion, or 51 cents a share, as the company transitions from the traditional model of licensing software installed on corporate computer systems to products delivered over the Internet.Oracle Corp.’s shares went on a roller coaster ride during the company’s earnings call Wednesday as investors mulled the diverging stories in its better-than-expected results, with sales of cloud software soaring 26% but also possibly taking away from the core business.While the cloud-based business posted a sales increase of 26 percent, the other key units reported declines in the fiscal second quarter ended Nov. 30, the Redwood Shores, California-based company said in a statement Wednesday.

Total revenue fell 6.3 percent to $8.99 billion from a year earlier, compared with analysts’ average estimate of $9.06 billion, according to data compiled by Bloomberg. Executive Chairman Larry Ellison has said the shift to cloud is still in the early stages for the industry — and his company can make gains with new products against rivals such as Workday Inc. and Microsoft Corp. “You kind of go back and forth through this gray area until we make that full jump to what’s next — and that’s going to be the cloud,” said John Rizzuto, an analyst at Suntrust Robinson Humphrey Inc. In October, Oracle said it would begin rolling out a new service that enable users to rent computing power by the hour or month — taking direct aim at Amazon.com’s cloud-computing service that is now a multibillion-dollar business. A more important indicator of the company’s core business was that new software licenses for on-premises software were down 18% (or 12% in constant currency). “While the company is showing some signs of cloud success, the meat and potatoes legacy database and app business is under major secular pressure,” FBR Capital Markets analyst Daniel Ives said in an email to MarketWatch. California unveiled precedent-setting draft rules that would slow the public’s access to self-driving cars of the future until regulators are confident the technology is safe.

At least one analyst on the call seemed slightly dubious of Oracle’s projections for cloud software, noting that the company would have to reap about $1 billion in the second half of the year in cloud. The draft sets the framework for how the state’s Department of Motor Vehicles wants to move from the current small-scale testing of prototypes on roads and highways to giving consumers access to the fast-evolving technology. But co-CEO Mark Hurd said he was confident based on the company’s strong pipeline of sales for the next six months. “You have a multi-billion dollar funnel, and our conversion rate is increasing,” he said.

As part of the transition to cloud, investors have been nervous about a negative impact on Oracle’s overall profit margins, as it replaces higher-margin installed software. For example, a $1 million licensing deal is worth about $3 million over 10 years, compared with about $10 million for an equivalent cloud deal, Catz said in June. Silicon Valley giant Google is already building a prototype without a wheel or pedals but rigging the hardware back into the cars pending the long-anticipated regulations. On Wednesday, a company spokesman said Google was “gravely disappointed” by the draft rules. ● U.S. industrial output fell for the third straight month in November, another sign that U.S. manufacturers are under stress. Aircraft manufacturing output fell 0.7 percent. ● FedEx reported a higher quarterly net profit, reflecting higher margins and cost-cutting and a lower effective tax rate.

The Bank of France cuts its forecast for fourth-quarter growth in the euro region’s second-largest economy to 0.3 percent last week after business sentiment fell. ● Slack Technologies, a Silicon Valley darling that’s raised more than $300 million, wants to give some of that money back. The fund will invest about $100,000 to $250,000 in smaller startups building applications that work with Slack’s messaging service, Butterfield said.

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