Wednesday, June 17, 2015

Please Sell

Oracle's financial results for Q4 of their fiscal year 2015 came out a few minutes ago.  Seems they missed targets on license revenues and earnings per share.  So the stock may be headed for the professional investor's dog house.  I've even read of an analyst or two publishing a "sell" rating on Oracle stock.

Geez, please sell.  Drive the price down.  I can buy some more shares on the cheap and laugh all the way to the bank.  Let me explain.

First, license revenues shrank.  Gee, no kidding?  Oracle is transitioning away from licensed software to cloud and license revenues shrank?  (insert sarcasm tag here) Better dump the stock before the bottom falls out! (end of sarcasm)

Second, Oracle (like every other tech firm recently) was theoretically dinged by exchange rates.  The dollar fell against the yuan, peso, ruble, ducat, yen, etc.  But currency rates average out...even over the short run.  Take a snapshot after the Greeks and the European Union work out their issues in a few weeks...regardless of how they work it out, bet that exchange rate issue becomes less of an issue.

Third, the name of the game in measuring success in providing whatever-as-a-service is recurring revenue.  You'll compromise margins on new subscriptions to grow share, then work hard to minimize churn...which maximizes very high margin recurring revenue.  So the telling numbers for Oracle's future as a cloud provider:  subscription revenue growth, recurring revenue growth, and recurring revenue margins.  Which I do believe were the high points in the results.

Fourth, the technical fundamentals...which is really the most important factor...are very good.  Solid products with lots of functionality.  I'm not too concerned about Oracle's financial viability as long as they keep producing great products.

So only am I not worried, I'm actually pretty enthusiastic about the results and what they really mean.

So please sell...I'd like to increase my minuscule Oracle holdings.  If enough folks sell, I'll be able to do so on the cheap.


Anonymous said...

Floyd, love your work as always.

Given Oracle's inability to gain any traction with On-Demand and similar initiatives in the past, what do you think has changed, that will make the Cloud offerings any more compelling? Not sayign that you are wrong, just interested in your thoughts.

Mark Schwerdt

fteter said...

Mark, you're too kind. Thank you for the comment.

I think what's changed is both the business model of the offering and market pressures.

On-Demand required a product license...including a support agreement. It was essentially a software hosting model. The new model is based on SaaS subscription. No product license, no support fees. So the up-front financial barrier for customer entry into the enterprise software space has dropped significantly.

As we've transitioned into a global marketplace, the pressure of better, faster and cheaper has grown substantially. And keeping on-premise apps running - upgrades, patches, operational maintenance - chews up a significant piece of IT budgets. Moving to SaaS removes that maintenance burden and frees up that IT budget to work on realizing strategic objectives.

So, at least from my perspective, it really comes down to "follow the money".