Why Oracle Shares Are Getting Slammed After Earnings

Paul Ausick

Oracle Corp. (NYSE: ORCL) reported fiscal third-quarter 2018 results after markets closed Monday. The enterprise software company posted adjusted earnings per share (EPS) of $0.83 on revenue of $9.77 billion. In the same period a year ago, the company reported adjusted EPS of $0.69 on revenue of $9.27 billion. Third-quarter results also compare to consensus estimates for EPS of $0.72 and $9.78 billion in revenue.

Growth in the company’s cloud services met the company’s projections, but investors were hoping for more following strong results at competitors Microsoft and

Adjusted operating income totaled $4.3 billion and adjusted operating margin came in at 44%. Non-GAAP net income totaled $3.5 billion.

Short-term deferred revenues totaled $8 billion, up 8% year over year. Operating cash flow on a trailing 12-month basis was $15.2 billion, up 13% from the prior year.

GAAP net loss was $4 billion and GAAP loss per share was $0.98 due to a one-time net charge totaling $6.9 billion related to the 2017 Tax Cuts and Jobs Act.

CEO Saftra Katz said:

During FY17, I forecast double-digit non-GAAP earnings per share growth for FY18. With non-GAAP earnings per share up 20% in Q3, our year-to-date earnings per share growth is now up to 16%. At this point, I feel quite confident that we will comfortably deliver on my original forecast of double-digit non-GAAP earnings per share growth for FY18.

CEO Mark Hurd added:

Our Cloud SaaS applications business is rapidly approaching $5 billion …and it’s still early days. Less than 15% of our on-premise applications customers have begun to migrate their applications to the cloud. As the other 85% of our applications customers start to move their applications to the Cloud, we have a huge opportunity in front of us. We expect to more than double the size of our SaaS business very quickly.

On top of the less-than-hoped for cloud revenues, Oracle said on its conference call that cloud revenues would rise in the range of 19% to 23%. Analysts were expecting an increase of 23%.

For the company’s fiscal fourth quarter, analysts are looking for adjusted EPS of $0.90 and revenues of $11.21 billion. In the same period last year, Oracle posted EPS of $0.69 and revenues of $10.94 billion.

Shares were pummeled in premarket trading Tuesday, down about 8.6%, at $47.50 in a 52-week range of $43.60 to $53.48. The consensus price target on the stock prior to last night’s earnings report was $56.14.