Not All Cloud Cloud Companies Are Equal: 4 Analysts Cautious On Oracle After Q4, Here's Why

Shares of Oracle Corporation ORCL are trading higher Tuesday after the company reported fourth-quarter earnings results after market close Monday. Here are what analysts had to say about the company’s latest report and what’s ahead.

The Oracle Analysts: Bank of America analyst Brad Sills had a Neutral rating on Oracle and a price target of $90.

BMO Capital analyst Keith Bachman had a Market Perform rating and lowered the price target from $92 to $86.

JMP Securities analyst Patrick Walravens had a Market Perform rating and no price target.

Piper Sandler Brent Bracelin had an Underweight rating and a price target of $70.

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The Analyst Takeaways: Bank of America's Sills was impressed with the licensing business line for Oracle but noted the company’s cloud segment lagged.

“Q4 represents another quarter with upside from license, demonstrating still healthy demand for legacy on premise database and application licenses,” Sills said.

The analyst noted cloud growth of 22% in the quarter was below expectations and came with several brands seeing declines.

BMO Capital's Bachman saw the growth of the company’s license segment as unsustainable and also highlighted cloud revenue being below guidance.

“We continue to believe that Oracle is well-positioned for the current investment climate that focuses more on FCF valuation,” Bachman said.

A focus on cost-cutting by the company could be more valuable than revenue growth, the analyst noted.

JMP Securities' Walravens increased guidance for Oracle with the Cerner acquisition adding to the fiscal year 2023. The analyst thought shares are fairly valued but points to several positives.

“Oracle has a couple really interesting things going on in its business, including a ramping cloud business that achieved an $11.6B run rate in F4Q, growing 19% organically,” Waravens said.

Oracle has been working on a transition to cloud for several years, Piper Sandler's Bracelin noted.

“We argue that Oracle Cloud operating metrics could underwhelm investors over the coming year,” Barcelin said.

The analyst saw cloud growth smaller than rivals and free cash flow margins depressed going forward.

Bracelin preferred companies such as Salesforce Inc CRM and Veeva Systems Inc VEEV instead of Oracle.

ORCL Price Action: Oracle shares closed Tuesday up 10.41% to $70.72.

Photo: Courtesy Oracle