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Stock of Oracle Slides After Earnings, Drawing Comparisons With New York Jets

September 12, 2023
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The exuberant optimism that had been building swiftly encountered a sobering reality, as indicated by recent developments concerning Oracle Corp. (ORCL, -11.81%). In light of the software giant's subdued financial projections, an analyst suggests that such a stark contrast could be likened to the disparity between Oracle and the New York Jets.

According to Mizuho analyst Jordan Klein, who is affiliated with Mizuho's sales division rather than its research unit, there was an abundance of enthusiasm and anticipation leading up to Oracle's financial report. However, despite the company's stock surging by 12% in the ten days prior to the earnings announcement, market expectations had gravitated toward a revenue forecast surpassing the consensus.

Oracle's disappointing outlook primarily stems from revenue challenges within its healthcare software subsidiary, Cerner, and does not appear to reflect broader concerns in the realms of cloud computing or artificial intelligence. Klein, however, contends that Oracle's highly anticipated CloudWorld 23 event next week has been overshadowed by this downbeat forecast.

In a metaphorical analogy, Klein likens Oracle's situation to that of the New York Jets, a football team that generated exceptional excitement among its fans with the prospect of success, akin to Oracle's recent market hype. However, just as the Jets' optimism was quickly dampened by an early injury to key player Aaron Rodgers, Oracle's financial outlook cast a shadow on its recent enthusiasm.

The repercussions were immediate, with Oracle's stock experiencing a precipitous decline of 12.9% during morning trading on Tuesday, marking its most substantial single-day percentage drop since March 4, 2002, when it plummeted by 14.5%. Analyst Brian White from Monness, Crespi, Hardt & Co. further exacerbated Oracle's predicament by downgrading the stock from "buy" to "neutral" following the earnings report.

White outlined his concerns, noting that while Oracle holds the potential to thrive in the evolving tech landscape with its cloud transformation initiatives, the company's valuation became less enticing, and sentiment grew excessively optimistic. Furthermore, challenges within Cerner posed additional uncertainties, leading White to anticipate further difficulties in the near future. He observed a shift in management's tone during Oracle's earnings call, describing it as "disturbingly peculiar" when compared to recent quarters, as confidence in the company's messaging appeared to wane.

While Oracle continues to demonstrate significant momentum in the realm of artificial intelligence, highlighted by over $4 billion in signed contracts with AI development firms related to Oracle's Gen2 Cloud, the anticipated growth stemming from a more aggressive cloud transition at Cerner is expected to be constrained, according to White's communication to clients.

Kirk Materne of Evercore ISI adopted a more measured perspective, attributing the stock's decline to overzealous expectations rather than major surprises in the fiscal first-quarter report. Consequently, he maintained an "in-line" rating on the stock while modestly raising the price target to $131 from $125.

On the other hand, Guggenheim analyst John DiFucci expressed a bullish stance, emphasizing the substantial growth potential that still lies ahead for Oracle in various segments. DiFucci assigned a "buy" rating to the stock and set a price target of $150, citing the considerable growth opportunities in software-as-a-service, the early stages of Oracle Cloud Infrastructure, and the nascent migration of on-premises databases to the cloud.

Adan Harris
Managing Editor
Eric Ng
John Liu
Editorial Board
Bryan Curtis
Adan Harris
Managing Editor
Cathy Hills
Associate Editor

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