Oracle Shares Drop Most in a Year as Sales Fall Short

Oracle Corp. (ORCL) dropped the most in a year after quarterly profit and sales missed analysts’ estimates amid efforts to catch up to Inc. and other rivals in cloud computing.

Oracle’s shares slipped 4 percent after the software company yesterday reported profit before certain costs of 92 cents a share in the fiscal fourth quarter that ended May 31 on revenue of $11.3 billion. On average, analysts projected profit of 96 cents and $11.5 billion in sales, according to data compiled by Bloomberg.

The database and business-software maker, which has relied on acquisitions to fuel growth, has seen the benefits of those deals peter out, posting sales growth of less than 5 percent for the past 11 quarters. Chief Executive Officer Larry Ellison is nearing a deal to buy Micros Systems Inc. (MCRS) for more than $5 billion, according to people familiar with the matter, and he’s also seeking to jump-start growth by remaking Oracle into a cloud provider to win back corporate customers adopting programs delivered via the Internet.

“This is a shocker for investors who were expecting a slight beat in the quarter — new license sales were weak and it’s quite clear the company has a lot of heavy lifting in front of it,” said Daniel Ives, an analyst at FBR Capital Markets & Co., who rates Oracle the equivalent of a buy. “Part of it is execution, part of it is product related.”

LiveLOOK Acquisition

The shares of Redwood City, California-based Oracle had their biggest percentage decline since June 2013 and closed at $40.82. The stock is up 6.7 percent this year, compared with at 6.2 percent gain in the Standard & Poor’s 500 Index.

Oracle made another acquisition in cloud computing today, with an agreement to buy LiveLOOK, a real-time technology for co-browsing and screen-sharing. Oracle has more than 100 global customers using LiveLOOK’s technology as an embedded part of its cloud offering, according to a statement that didn’t disclose the terms of the deal.

Net income in the fourth quarter fell 4.2 percent to $3.65 billion, or 80 cents a share. New software-license sales, a closely watched indicator of future revenue, was unchanged at $3.77 billion, Oracle said. Hardware systems sales rose 2.4 percent to $1.47 billion during the quarter.

For the current quarter, which ends in August, Chief Financial Officer Safra Catz said profit, excluding some costs, will be 62 cents to 66 cents a share, and sales will climb 4 percent to 6 percent. Analysts on average were predicting profit of 64 cents and a revenue gain of 5 percent to $8.78 billion.

Cloud Transition

Catz attributed lower revenue to the transition to cloud software, products for which the company recognizes revenue over the term of a subscription. With traditional software, Oracle recognizes revenue up front when it makes a sale.

“We’ve successfully grown the company’s revenues and earnings through every transition, whether it was many computer databases to a complete suite of products, client-server Internet, hardware engineered systems and now on-premise cloud,” Catz said on a conference call yesterday. “We are well under way with our most recent transition.”

Software Products

Oracle and Micros, a provider of software for hotels and restaurants, are in exclusive talks, though the two sides could still fail to reach an agreement, according to the people familiar, who asked not to be identified discussing a private matter, earlier this week.

The company has worked to catch up in cloud computing and to rebuild a sales force weakened by defections to rivals, said FBR’s Ives.

“It’s still a challenging information-technology spending environment, but if Oracle isn’t doing well it comes down to execution issues and a product strategy that isn’t yet seeing the near-term deal flow that investors would want,” Ives said.

Earlier this month, Oracle unveiled database software that takes advantage of large amounts of computer memory to speed data analysis and online commerce. The 12C in-memory database product will be available next month, the company said. Ives considers it Oracle’s most important product release in a decade and the underpinning of a new, cloud-focused Oracle.

“If 12C is successful it could really be a snowball effect that could be a major catalyst for the cloud product set across the company,” he said. “They are heading in the right direction on paper, but they need to execute.”

As part of the shift to selling more cloud software, Oracle broke out revenue for its cloud infrastructure-as-a-service products, which allow companies to store and run applications on the Internet. Oracle said it had $128 million of sales in that category. In two other cloud categories combined, software-as-a-service and platform-as-a-service, the company said sales rose 25 percent to $322 million.