Company Reports

Narrow-moat Oracle’s third-quarter results fell short of our aggressive estimates on the top and bottom lines, but were more in line with broader investor expectations. Shares are surging after hours, likely based on the strong growth in both cloud revenue and remaining performance obligations, in our view. Despite the recent stock performance, we maintain our fair value estimate of $84 per share and see shares as overvalued. The firm is progressing well on initiatives in both Cerner and Oracle Cloud Infrastructure, or OCI, which is in line with what we anticipated for the quarter, as well as with our longer-term growth and margin cadence.

Narrow-moat Oracle’s second-quarter results were nuanced, with the top line coming in lower than our expectations while non-GAAP EPS estimates came in slightly better. Shares are down 8% upon results, due to the underwhelming revenue. Capacity constraints within the OCI business were partially to blame. While Oracle’s OCI business is top of mind for more investors, we are more interested in how Oracle’s greater ERP and database software businesses are faring, as we continue to believe Oracle is facing far steeper competition in both realms as a result of cloud migrations. While our top-line forecasts remain largely unchanged, and still imply continuous market share declines in their ERP and database business, we have increased our estimates for longer-term GAAP margins. As a result, we are raising our fair value estimate to $83 per share from $76 per share. However, the increase still implies a significant overvaluation of the stock. As a result, we point investors to vastly more appealing stocks in our view such as Snowflake, which we value at $231 per share.

Oracle is a best-in-breed provider of on-premises relational database technologies and enterprise resource planning, or ERP, software and is one of the most profitable companies in the software industry. However, growth has been lacking as more customers shift their workloads to the cloud, bypassing Oracle’s solutions. Despite Oracle’s cloud migration efforts, cloud competition will likely provide headwinds for Oracle. In turn, our moat rating for Oracle is narrow, coupled with a negative moat trend rating.

Oracle hosted its analyst day today, reiterating its fiscal 2026 non-GAAP targets given last year and highlighting where specific opportunities lie—stressing cloud applications and infrastructure in particular. We think Oracle’s profitability and EPS goals for three years from now are realistic, well-justified, and even slightly conservative. Nonetheless, we think revenue projections will be shy of targets even as we don’t deny ample opportunity, but we do question Oracle’s ability to win rates in the face of such opportunity while operating in a heated competitive environment. As a result, we believe Oracle shares are overvalued given our fair value estimate of $76 per share for the narrow-moat firm, which we continue to believe is undergoing switching cost vulnerability amid cloud migrations.

In its fiscal first quarter, Oracle’s revenue came in short of our expectations. The letdown on revenue combined with light top-line guidance for the next quarter has the stock tumbling by 9% after hours upon results. But even with the market semicorrection, we think the stock is still significantly overvalued. While Oracle’s cloud infrastructure revenue is growing the fastest of any of the firm’s segments, we think the market is overly optimistic about the level of cloud market share Oracle can get to in the long term. We aren’t undermining near-term growth potential, however, as we recognize the firm is going through a catch-up period on data center rollouts. Altogether, we are maintaining our fair value estimate for the narrow-moat stock at $76 per share, as our more bearish outlook on information as a service, or IaaS, in the long term remains unchanged. We are eager to hear more details from management on the longer-term outlook at the financial analyst meeting day next week.

Narrow-moat Oracle’s fourth quarter exceeded expectations on the top and bottom line as its cloud infrastructure business’ growth rate nearly doubled from last year, showing solid health in the nascent business. Nonetheless, our concerns remain for what we believe is a more limited upside to the cloud infrastructure market than what the market is baking in. Even with this concern in mind, we are raising our fair value estimate to $76 from $67 per share, after accounting for the time value of money as we roll our model ahead. However, with shares up by over a whopping 80% over the last trailing 12 months, we still strongly believe that shares are significantly overvalued, in 1-star territory. We reiterate our belief that Oracle is a moaty, sticky company, but we continue to believe switching costs are vulnerable in its core enterprise resource planning and database markets as enterprises shift workloads to the cloud, causing reflection on how to best meet their software needs.

Oracle is a best-in-breed provider of on-premises relational database technologies and enterprise resource planning, or ERP, software and is one of the most profitable companies in the software industry. However, growth has been lacking as more customers shift their workloads to the cloud, bypassing Oracle’s solutions. Despite Oracle’s cloud migration efforts, cloud competition will likely provide headwinds for Oracle. In turn, our moat rating for Oracle is narrow, coupled with a negative moat trend rating.

Oracle’s third-quarter results came in right in line with our expectations, with some stability coming from its small exposure to consumption-based revenue. Nonetheless, the market had baked in more optimistic revenue results, leading to a slight dip for the stock upon results. Even with the mismatch between us and the market, we think shares are still overvalued, given our maintained fair value estimate for the narrow-moat stock at $67 per share.

Oracle’s fiscal second-quarter results surpassed our expectations thanks to outperformance from Cerner and strength in infrastructure and applications. While the outlook for the next quarter was healthy, currency headwinds don’t appear to be subsiding anytime soon—and Oracle will undergo elevated capital expenditure over the next few quarters to further build out cloud regions amid ongoing demand. As a result, we are maintaining our fair value estimate at $67 per share. With shares up around 2% after hours, near $83, we think the narrow-moat negative-trend company is overvalued. We continue to believe that absolute growth and margin expansion are in the cards for Oracle over the next five years. However, we think that the market is overestimating the extent of such growth given increasingly competitive forces as customer churn becomes a significant risk as enterprises transition workloads to the cloud.

On Oct. 20, Oracle hosted a financial analyst day at its larger CloudWorld event. At the event, the company revealed far-reaching fiscal 2026 expectations. While we like the aggressive goal, we think $65 billion in organic revenue by fiscal 2026 will be a tough ask, given the legacy-related headwinds we believe Oracle faces. We will continue to closely monitor how Oracle weathers the mass shift from legacy systems to the cloud, which ultimately determines whether the firm can cross $65 billion on the top line in several years. On the other hand, management’s target of non-GAAP operating margins of 45% by fiscal 2026 seemed very realistic to us; we continue to expect Oracle to reach 47% by fiscal 2026. Margin bridges revealed during the day gave us further confidence that 47% can be reached. All considered, we are maintaining our $67 fair value estimate and believe the shares are fairly valued.

Oracle is a best-in-breed provider of on-premises relational database technologies and enterprise resource planning, or ERP, software and is one of the most profitable companies in the software industry. However, growth has been lacking as more customers shift their workloads to the cloud, bypassing Oracle’s solutions. Despite Oracle’s cloud migration efforts, cloud competition will likely provide headwinds for Oracle. In turn, our moat rating for Oracle is narrow, coupled with a negative moat trend rating.

In its first quarter with Cerner under its wing, Oracle beat the company’s high end of guidance on the top line (in constant currency terms), but due to strength in the U.S. dollar, non-GAAP EPS came in slightly under management’s guided range. While the outlook is healthy amid further currency headwinds to come, we continue to be more cautious on Oracle’s long-term potential. We are maintaining our fair value estimate for the narrow-moat stock at $67 per share. With shares up slightly after hours, near $78, this leaves the negative-trend company overvalued, in our view. Altogether, we believe that the market is overestimating the share Oracle can take of the database management market of the future—which we believe will pertain increasingly to nonrelational workloads outside of Oracle’s wheelhouse.

Oracle’s fourth quarter was rosier than expected with earnings per share exceeding the high end of management's guidance, as customer cloud consumption revenue growth grew at a robust pace, exceeding 100%. Nonetheless, the outlook was not a surprise—leading to only moderate long-term forecast boosts as a result, on our end. While also considering the time value of money from rolling our model, we are increasing our fair value estimate for the narrow-moat stock to $67 from $63 per share. This leaves the negative-trend company fairly valued, with shares trading near $73 in after hours.

Oracle is a best-in-breed provider of on-premises relational database technologies and enterprise resource planning, or ERP, software and is one of the most profitable companies in the software industry. However, growth has been lacking as more customers shift their workloads to the cloud, bypassing Oracle’s solutions. Despite Oracle’s cloud migration efforts, cloud competition will likely provide headwinds for Oracle. In turn, our moat rating for Oracle is narrow, coupled with a negative moat trend rating.

Oracle’s third quarter was marked by some bright spots--like in Oracle's Fusion cloud ERP and HCM offering--but ultimately came in as a disappointment. Oracle missed our top and bottom line expectations, with gross profit significantly contributing to the discrepancy. Coupled with results was the outlook for the upcoming fourth quarter, which was also underwhelming. Outlook assumed Cerner would be acquired after the upcoming fourth quarter. In our model, we assume the deal will close at the beginning of Oracle's fiscal 2023 and we continue to believe that the deal leaves much to be desired, with little synergies in sight. All considered, we are maintaining our fair value estimate for the narrow-moat stock at $63 per share. This leaves Oracle overvalued with shares trading at $76 in after hours.

Oracle is a best-in-breed provider of on-premises relational database technologies and enterprise resource planning, or ERP, software and is one of the most profitable companies in the software industry. However, growth has been lacking as more customers shift their workloads to the cloud, bypassing Oracle’s solutions. Despite Oracle’s cloud migration efforts, cloud competition will likely provide headwinds for Oracle. In turn, our moat rating for Oracle is narrow, coupled with a negative moat trend rating.

On Dec 20, narrow-moat Oracle agreed to acquire narrow-moat Cerner for $95 per share ($29.4 billion in enterprise value) in an all-cash deal that will be the largest in Oracle's history. At first glance, we're not fans of this deal. We don't foresee enough synergies for Oracle to justify the price that the company is paying for Cerner. Further, we view Cerner's narrow moat as having a negative trend. Our negative outlook is a function of continuing healthcare system consolidation which we expect to favor best-of-breed EHR vendor Epic, which is also posting more wins than Cerner as hospitals refresh their legacy EHR systems from the early 2010s, sans consolidation. We will lower our fair value estimate for Oracle to $63 per share from $65, as we think Oracle is overpaying by roughly $5 billion in total. Even though Oracle's stock has dropped by 8% over the last five days to $92 per share, this still places Oracle in heavily overvalued territory. We caution that investors refrain from buying Oracle stock.

Oracle's second-quarter results came just slightly above our expectations in terms of revenue and non-GAAP EPS. However, the market reacted strongly, with Oracle shares up 10% in after hours, as FactSet consensus estimates and guidance were decently below our forecasts coming into the quarter. We had rosy expectations going into the quarter due to the overall healthy growth we were expecting in both the ERP and database markets.

Oracle is a best-in-breed provider of on-premises relational database technologies and enterprise resource planning, or ERP, software and is one of the most profitable companies in the software industry. However, growth has been lacking as more customers shift their workloads to the cloud, bypassing Oracle’s solutions. Despite Oracle’s cloud migration efforts, cloud competition will likely provide headwinds for Oracle. In turn, our moat rating for Oracle is narrow, coupled with a negative moat trend rating.

Oracle kicked off fiscal 2022 with a mixed quarter, with the top line finishing below our estimates and the bottom line finishing above them. The company’s cloud business continues to perform well and grow as a portion of Oracle’s overall sales. Since the cloud business typically offers better margins than the firm’s on-premises business, we view this mix shift positively as the increasing cloud mix will help the company grow its profitability. At the same time, however, we remain aware of the intense competition in the database management market and maintain our fair value estimate of $65 per share. With shares trading around $87, we recommend waiting for a pullback before committing capital to the narrow-moat name.