Tags: Oracle | Results | Disappoint | Investors

Oracle's Results Improve but Disappoint Investors

Tuesday, 18 Mar 2014 05:31 PM

Oracle Corp. on Tuesday reported increased revenue and profit for its fiscal third quarter. But the results disappointed investors, who were looking for signs of a sustained turnaround, and its shares fell in aftermarket trading.

Shareholders had become hopeful after Oracle's previous quarterly report card but were still worried about slow IT spending and growing competition from nimble rivals.

"They still have heavy lifting ahead in order to declare this a turnaround story," Dan Ives, an analyst with FBR, said. "Investors need to see more. It continues to be a 'prove me' stock in the eyes of investors."

The company said new software sales and Internet-based software subscriptions in its fiscal third quarter ended Feb. 28 rose 4 percent from a year earlier.

The company had forecast that new software sales and subscriptions would be up between 2 percent and 12 percent in the quarter. New software sales are scrutinized by investors because they generate high-margin, long-term maintenance contracts and are an important indicator of future profit.

Revenue from Oracle's hardware systems products grew 8 percent to $725 million, the first increase since the software company's $5.6 billion purchase of Sun Microsystems in 2010.

The recovery in Oracle's hardware business is symbolically positive but much less important than the company's struggle to sell more software, its core business, said Ives.

 

UNDERCUT

Smaller, aggressive companies like Salesforce.com and Workday have been offering competitive software and Internet-based products at prices that often undercut Oracle.

In response, four-decade-old Oracle has been rolling out its own cloud-based products and acquiring smaller cloud companies like marketing software maker Responsys Inc.

In Tuesday's report, Chief Financial Officer Safra Catz said revenue from cloud software subscriptions was up by about 25 percent in the quarter.

By comparison, Salesforce.com last month posted a 37 percent rise in fourth-quarter revenue.

A broad term referring to the delivery of services via the Internet from remote data centers, cloud computing is becoming a favorite with corporate technology buyers because it is faster to implement and has lower upfront costs than traditional software.

Most of Oracle's business relies on selling database software and hardware that customers install in their own data centers. Customers pay extra maintenance contracts that are highly profitable to Oracle and provide a steady stream of cash.

 

Global IT spending is likely to increase just 3 percent this year, while spending on cloud services is expected to grow 18 percent, according to market research firm Gartner.

For the third quarter, Oracle said overall revenue rose 4 percent to $9.31 billion. That was a little below the $9.36 billion analysts had expected on average.

Net income was $2.56 billion, up 2 percent. Earnings per share, which reflected a decrease in the number of shares outstanding, rose 8 percent to 56 cents.

On an adjusted basis, Oracle earned 68 cents per share.

At about 5:30 p.m. in New York, shares of Oracle were down 3.9 percent at $37.32, after closing up 1.6 percent at $38.84 in regular trade on the NYSE.

© 2017 Thomson/Reuters. All rights reserved.

 
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Oracle Corp. on Tuesday reported increased revenue and profit for its fiscal third quarter. But the results disappointed investors, who were looking for signs of a sustained turnaround.
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2014-31-18
Tuesday, 18 Mar 2014 05:31 PM
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