https://www.wsj.com/articles/oracles-past-surprises-on-guidance-leave-analysts-wary-1529402401
SOUR SENTIMENT: In each of the previous three quarters, Oracle management shook investors with guidance that fell below expectations. Three months ago, the Redwood City, Calif., business-software maker said cloud-computing revenue would climb 19% to 23% in the quarter that just ended, while analysts had expected 23% growth. That sank Oracle shares more than 9% the next day to $47.05. The stock hasn’t closed above $50 since, and finished Monday at $46.52. Barclays analyst Raimo Lenschow expects Oracle to post 20.5% growth in its cloud business, writing in a recent research report that he’s uncertain if the fiscal fourth quarter “will necessarily be the beginning of a sustained multi-quarter recovery in the shares just yet.” That said, Mr. Lenschow added, “with investor sentiment being very low and the shares at cheap valuation levels, we see limited downside risk this quarter.”
GUIDANCE WATCH: With Oracle’s below-expectations guidance for cloud revenue in recent quarters, Wall Street will focus on the company’s forecast for its fiscal first quarter. Management typically provides that during a conference call with analysts after the company reports results. The consensus among analysts is for cloud revenue to climb 21.8% in the current quarter to $1.82 billion.
SPENDING SLIDES: Oracle shares took a hit last week after JPMorgan Chase & Co. analyst Mark Murphy downgraded his rating to ‘neutral’ from ‘overweight’ and reduced his December 2018 price target to $53 from $55 based on corporate spending concerns. Roughly 21% of the 154 chief information officers surveyed by JPMorgan said they plan to reduce spending on Oracle products, the worst performance among the 25 tech companies about which the firm asked. Moreover, when asked to name the “most critical and indispensable” tech vendors, CIOs cited Oracle less than in the past, while increasingly mentioning Amazon.com Inc.’s rival Amazon Web Services unit. That shift, Mr. Murphy wrote, is “creating the appearance of a ‘s---ing sound’ out of Oracle and into AWS.”
DATA-CENTER COSTS: To compete against AWS, as well as Microsoft Corp.’s Azure and Alphabet Inc.’s Google Cloud, Oracle is boosting its development of offerings that provide computing resources and storage over the internet, known as infrastructure as a service. But building that business is costly, requiring multibillion-dollar investments in data centers around the world to deliver the technology. In February, the company said it planned to quadruple the number of its biggest data-center complexes globally over the next two years, adding that it will boost spending as business needs dictate. Nonetheless, UBS Securities analyst Jennifer Lowe expects $1.8 billion in capital expenditure in the latest quarter, down from $2.0 billion a year ago.