Oracle's Earnings: 'Tug Of War Between Old And New Continues'

Oracle Corporation ORCL delivered a “general miss across the board” in FQ1, with currency headwinds being partly to blame, UBS’s Brent Thill said in a report. He maintained a Buy rating on the company, with a price target of $44.

Oracle reported headline revenue of $8.6 billion, short of the Street’s $8.7 billion expectation. OPM came in at 39.5 percent, below the Street’s estimate of 40.2 percent. At $0.55, EPS also missed expectations of $0.58.

Related Link: The Bar Is Set Low For Oracle's Q1 Results

“Results appear to have had an uncontemplated 100bps FX headwind, and higher than modelled tax rate which explains some of the optical miss vs. consensus,” analyst Thill wrote.

Cloud To The Rescue

The FQ1 results indicated that Cloud’s progress was “clear, encouraging, and largely incremental,” Thill mentioned. He pointed out, however, that the margin profile was inferior to Oracle’s on premise business, added, “…we wonder if the real compression on ORCL's profitability is yet to come, especially if the higher margin infrastructure franchise has yet to even begin its Cloud pivot.”

“Though we caution that navigating this transitional territory is unlikely to be swift or smooth, ORCL has emerged from far more precarious circumstances (early 90s), valuation is undemanding on both an absolute and relative basis, and the balance sheet/capital allocation strong enough to provide downside support to shares,” the analyst added.

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