Oracle Stock: This Is an Uphill Task for Oracle Corporation

ORCL StockOracle Corporation (ORCL Stock) in Tough Race with Rivals

Oracle Corporation (NYSE:ORCL) announced its second-quarter earnings after hours on Thursday. The company has been in the news since Oracle CEO Safra Catz attended the tech meet with Donald Trump together with other technology leaders on Wednesday.

The lower-than-expected revenue growth seems to have dampened ORCL stock, which was down by over two percent in after-hours trade.

However, the company wants to get ahead of its two strong rivals, salesforce.com, inc. (NYSE:CRM) and “Amazon Web Services” by Amazon.com, Inc. (NASDAQ:AMZN), which looks like a difficult task.

Oracle stock posted fiscal second-quarter adjusted earnings of $0.61 per share on revenue of $9.07 billion. The growth in revenue turned out to be short of expectations. In the earnings call, Oracle CEO Safra Catz said that, in this quarter, the effects of currency movement were more than she had included in her guidance. This was mostly due to a strengthening U.S. dollar after recent elections in the U.S. and Europe, resulting in a currency headwind of one percent in total revenue.

The cloud business posted impressive growth. Cloud Software as a Service (SaaS) and Platform as a Service (PaaS) revenues were $878.0 million, up 81% in U.S. dollars and up 89% in constant currency. Total cloud revenues, including Infrastructure as a Service (IaaS), were $1.1 billion, up 62% in U.S. dollars and up 64% in constant currency. (Source: “Q2 SaaS and PaaS Cloud Revenues Up 81%, and Up 89% in Non-GAAP Constant Currency,” Oracle Corporation, December 15, 2016.)

The Oracle CEO also said that the cloud SaaS and PaaS revenue growth rate has increased for four consecutive quarters. She added that when salesforce.com had crossed the billion-dollar milestone, its SaaS and PaaS subscription growth rate had slowed down to 36%, even after including all its acquisitions.

The company has been investing heavily in its cloud business and also acquired NetSuite Inc (NYSE:N) this year. Oracle stock has returned about nine percent over the past one year as compared to 13% gains posted by S&P 500.

“Oracle has now passed salesforce.com and become number one in SaaS cloud applications sales to customers with over 1,000 employees according to the latest IDC report,” said the other Oracle CEO, Mark Hurd. He further emphasized that with the acquisition of NetSuite, the company plans on being the No. 1 cloud applications service provider for companies with less than 1,000 employees as well.

The company is also trying to catch up with Amazon Web Services. In the Oracle OpenWorld conference in September this year, Oracle chairman Larry Ellison had demonstrated that Amazon databases were 20 years behind the latest release of the Oracle “Database in the Cloud.” (Source: “Oracle Beats Amazon Web Services in Head-to-Head Cloud Database Comparison,” Oracle Corporation, September 20, 2016.)

However, AWS is a clear leader at the moment.

The next year holds more promise for the business software company as it transitions from its core database business to the high-growth areas, and this will lift ORCL stock.

Oracle CEO Safra Catz to Advise Donald Trump

As the company gets ready to prove its mettle in the cloud in the next year,  focus will be on Oracle CEO Safra Catz as she joins the executive committee of the president-elect’s transition team. Catz is optimistic that Donald Trump will reform the tax code and loosen regulations. That would likely to benefit the technology sector.

However, Oracle has a lot of catching up to do, and the huge investments will take some time to bear fruit. Oracle stock is likely to remain under pressure for a while.