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Oracle slumps on second quarter guidance

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Oracle slumps on second quarter guidance

Shares of Oracle (NYSE:ORCL) traded lower on Wednesday morning following the company’s second quarter outlook. With the stock market trading around all time highs, alongside high valuations, large companies like Oracle have come under the spotlight.

After the close on Tuesday Oracle stated it expects earnings of 64 to 69 cents a share for its fiscal second quarter. On the top line the company sees revenue growth between 1 percent to 4 percent during the quarter. If we compare this guidance to analyst consensus estimates we see a mixed bag. Analysts are currently expecting earnings of 69 cents a share and revenue growth of 3 percent in the second quarter. While the guidance may seem close to predicted figures, there is the potential for unexpected moves within the ranges provided by the company. A difficult technology environment within Europe and the U.S. has caused great pain to the entire technology sector.

According to Chief Financial Officer, Safra Catz, Oracle expects software and subscription revenue to decline by as much as 4 percent or rise as much as 6 percent in the quarter. With such wide spreads, it will be difficult for the street to value the company in an already difficult valuations environment. In the first quarter, the company’s new software sales and Internet-based software subscriptions rose 4 percent to $1.7 billion, largely in line with the predicted figures. Investors tend to zone in on new software sales because these sales are beneficial to the bottom line. Software sales generate high-margin, long-term maintenance contracts and are an important signal of profitability.

Going forward, I would watch to see if any analysts comment on the update guidance. It is likely we will see analysts adjust their price targets in the coming weeks in preparation for the quarter to come. Shares rebounded from their lows at the time of this writing and are currently trading at $33.50 per share.

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