Stifel Projects A Prolonged 'State Of Transition' For Oracle In Downgrade Report

Oracle Corporation ORCL reported mixed fiscal third-quarter results Monday that led Stifel to drop its bullish stance on the stock. 

The Analyst

Stifel's Brad Reback downgraded Oracle from Buy to Hold with a newly assigned $53 price target.

The Thesis

Oracle's top-and-bottom line came in ahead of the Street's expectations, but the EPS beat was mostly driven by a lower-than-expected tax rate of 16 percent, Reback said in the downgrade note.

SaaS revenue of $1.16 billion did rise 21 percent year-over-year, but fell short of the $1.19 billion the analyst expected. In fact, the miss in the SaaS business came at a time when several of Oracle's properties like Fusion ERP and HCM saw high levels of growth, Reback said. 

Oracle said for the first time that its "legacy" acquired SaaS properties are only growing at a low single-digit rate, which is weighing on overall SaaS growth rates, the analyst said. This could imply that Oracle is seeing a mix shift within the SaaS business similar to the mix shift within the PaaS/IaaS business that was seen in the prior quarter, he said. 

Oracle's license revenue "modestly disappointed," Reback said, as revenue fell 6 percent year-over-year and maintenance revenue grew only 1 percent from a year ago.

Oracle's "lackluster" earnings report and outlook is concerning, and the company will likely remain in a "state of transition in coming years," according to Stifel. 

Price Action

Shares of Oracle were trading lower by more than 8 percent early Tuesday morning.

Related Links:

Morgan Stanley: Oracle Is A Buy Ahead Of The Q3 Print

KeyBanc Says SaaS Investors Should Remain Bullish, But Selective

Oracle Executive Chairman Larry Ellison. Courtesy photo.