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Technology Stocks : Oracle Corporation (ORCL) -- Ignore unavailable to you. Want to Upgrade?

To: hasbeen101 who wrote (10316)	4/5/1999 9:49:00 AM
From: Mark Palmberg	Respond to of 19080

From http://moneycentral.msn.com/articles/invest/jubak/3150.asp: "Are earnings repeatable? Let's look at Oracle Systems' (ORCL) report of quarterly earnings on March 11, 1999, to see why this one is important. Oracle managed to report 20 cents a share, exactly matching Wall Street expectations despite a significant shortfall in revenue for the quarter. (Oracle's revenue of $2.08 billion was about $100 million below Merrill Lynch's estimate, for example.) The company made up the difference by cutting expenses and by selling shares in Oracle Japan. The news drove the stock from a March 11 close of $36.88 to just a tad over $26 on March 23. Blame it on the poor quality of a part of Oracle's earnings. There are basically two high-quality ways to increase earnings: grow sales and cut costs. Wall Street gives these sources its stamp of approval because they're repeatable. Sales growth in the current quarter usually -- but not always -- leads to sales growth next quarter. Products that are in demand with customers tend to stay in demand for a while. Similarly, costs, once cut, usually -- but not always -- stay cut, and a cost-cutting culture often will identify an ongoing list of places where the company can save. An asset sale, on the other hand, isn't repeatable. Once sold, the shares of Oracle Japan can't be sold again next quarter. The income from that sale was certainly real. But investors can be pardoned if they chose not to pay the going Oracle P/E multiple for a part of the company's earnings that would not lead to future earnings growth. And they certainly understood that the motivation for this sale was weakness at Oracle and not strength. Without the $24 million from the sale, Oracle would have missed estimates by 2 cents a share rather than meeting them. (It takes a careful reading of the footnotes to the company's quarterly income statement to find that this sale explains a vague item called "other income.") A sale of stock is just one source of non-repeatable earnings. Sales of other assets such as "surplus" real estate, lump-sum royalties, up-front franchise fee payments and one-time market-access fees (of the sort common among Internet companies) also generate earnings growth that might just be a temporary spike above a lower and more sustainable growth rate." Mark