Bearish Trend for Oracle Shares Widens Amid Decelerating Cloud Revenue Growth

    Author Siraj SarwarPosted on Categories Application SoftwareTags , , , , , , , , , , ,
    Oracle Corporation

    Oracle Corporation (NYSE:ORCL) share price plummeted despite beating its revenue and earnings estimate for the fourth quarter by a slight margin. Analysts blame lower than expected growth from Oracle’s cloud business for the selloff; they believe the declining growth rate in Oracle’s revenues could be a major headwind for its share price in the days to come.

    Oracle Corporation

    Oracle has been investing heavily in its cloud business segment over the last two years. Although its cloud revenue increased 50% in the last twelve months, the growth rate has been stagnant over the last two quarters.

    Oracle’s year-over-year cloud revenue growth of 8% in the final quarter of fiscal 2018 missed analysts’ consensus estimate for 17% to 21% growth.

    Its former head of global contracts Craig Guarente, in contrast to what Oracle believes, believes that the company’s strategy of pushing customers towards cloud has turned off large clients. Guarente stated: “There is a huge struggle going on between Oracle and many of their clients. Oracle is pushing cloud everywhere, even where customers don’t want it and can’t use it.”  

    Price Target Cuts and Valuations Weighs on Price Performance

    Oracle share price dipped more than 13% since the start of this year. In addition, market pundits are seeing limited upside potential for its shares amid sluggish sales growth across the business. The company’s fourth-quarter revenue increased only 4% from its fourth-quarter revenue growth last year.

    Oracle Corporation
    Source: Finviz

    JP Morgan has downgraded its Oracle price target from $65 to $60, saying “Oracle’s specific metrics have arced over into negative territory, which makes us uncomfortable.”

    Oracle expects similar revenue growth in fiscal 2019, which isn’t offering huge support to its share valuations. Its stock price valuations are trading higher than the industry average, which analysts believe weighs on the stock’s upside potential. ORCL shares are trading around 5 times to sales and 53 times to earnings, whereas the industry average is around 2 times to sales and 20 times to earnings.

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    Author Siraj Sarwar
    About the author: Based in Saudi Arabia, Siraj has a strong understanding of and passion for accounting and finance. He has worked for international clients for many years on several projects related to the stock market, equity research and other business, accounting and finance related projects. Siraj is a published financial analyst on the world's leading websites including SeekingAlpha, TheStreet, MSN, and others.