Found this article on the net:
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Oracle: Avoid on Weakness (3/12/99)
by Chris Bulkey
Shares of Oracle (NASDAQ: ORCL) are getting crushed today, down more than 20% to $29.50. Why? Afterall, yesterday the company announced third-quarterearnings that met consensus estimates of $0.20 per share.
However, investors are obviously looking beyond this superficial fact. For one thing, a penny of the $0.20 was due to interest earnings on the proceeds of an IPO of Oracle Japan, and by pulling some accrued marketing
expenses out of reserves--some clever financial engineering to meet estimates.
And although revenue of $2.1 billion came in 'just' $100
million below expectations, investors are concerned about
the continued deceleration of the top line in general, as the
19% year-over-year increase was the weakest of the
year. More specifically, the database and applications
businesses have shown significant year-over-year declines
for the past three quarters.
For example, the application software business is slowing
as Y2K spending in general seems to be winding down.
CEO Larry Ellison downplayed Y2K concerns with
analysts and noted that the launch of Oracle CRM 3I--the
Internet version of the customer relationship management
suite--will be critical. Unfortunately for Oracle, new
product launches over the past few years have not
generated rapid sales growth.
Hambrecht & Quist points out that Oracle's growth
in internet-related applications has lagged the overall
growth of the internet by a wide margin. This area of
the business faces product transition issues and the
likelihood of continued pressure on industry-wide sales
due to Y2K concerns.
The company recently acquired eTravel in an effort to
increase e-commerce software, which shows that it is
seeking ways to get this business going again. However,
looking externally for growth adds extra risk for the
company, and although the purchase wasn't huge, it does
show that perhaps the company is 'late to the party' in this
area.
Now, part of Oracle's marketing campaign has been
predicated upon the fact that nearly every major internet
site in the world uses an Oracle database. Yet, growth on
this side of the business continues to be somewhat
disappointing, say analysts.
product. But, it's a new product with unproven market
acceptance. It can be concluded that this side of the
business is also slowing, and needs new products to
reinvigorate growth.
In the end, Oracle remains a dominant player in the
corporate information technology market, but has not yet
established proven growth channels in internet-related
markets. The company's core business is plagued by a
general slowdown from Y2K issues, and has significant
product transition issues to resolve.
The upshot for investors: Remain cautious with Oracle
at this time. Don't rush in to buy shares despite
Friday's early selloff. Don't forget: investors bid Oracle
up over 200% from the lows hit in October, which set the
stage for today's sharp decline.
H&Q reduced its earnings forecast for Oracle since it
sees weakness in all areas of the business. Having been on
the high side of consensus estimates, the brokerage has
pulled its forecast slightly below the consensus-to $0.84
per share this year and a buck in fiscal 2000. This puts
the shares at nearly 30 times forward earnings for a
company whose business is decelerating.
Bottom Line:
Oracle is a dominant player in applications software, but
the market has been weak for some time now, and is not
forecasted to rebound anytime soon. Oracle has a greater
chance of disappointing in the next few quarters than it
does of providing an upside surprise. |
