The other day someone asked me about the stock of Oracle (ORCL) ahead of last night's quarter and I said it was pretty much of a push, maybe a little better to the buy side, just because it's so cheap and so low and so loved by the analysts. My reasoning: if it misses the quarter, it probably won't go down much and if it makes it, then you are going to make a little more than you would lose.
You could say it is a reasonable low risk, low reward situation.
Sure enough, it misses and you see what I mean about it having a limited downside. It pretty much did nothing. It was almost unchanged for half an hour after the miss. You could have sold 50,000 down $0.30. How many companies have that kind of luck in this market?
That's because Oracle is playing an amazing game of rope-a-dope. It has a fast-growing cloud business but, as Eric Jhonsa notes elsewhere, it still can't offset its declining growth in its gigantic on-premises business. It's almost as if you could only have the cloud business, if Oracle could somehow hive it off -- you would have a stock with a huge price to earnings multiple that everyone wants. However, it's got a legacy business that could pull down a Facebook (FB) or even an Amazon (AMZN) if it were attached to it.
No matter. Oracle is relentlessly upbeat about this smaller, but fast growing cloud business -- alternately called "software as a service" and "platform as a service" throughout the call, depending upon its designation within the revenue lines -- and it almost totally ignores the large, sagging old part of its business and the analysts all let them get away with it.
It's almost phantasmagorical. Oracle simply can't stop saying how great it is and how fast it is growing in the cloud, naming some decent wins, pretty much assuring you that it is capturing all the migration to the cloud that there is, and the analysts just lap it up. They are totally unquestioning.
I keep thinking that someone is going to call out the company for insisting that this overall definite earnings miss is a great quarter, something that Safra Catz, Mark Hurd, co-chief executive officers, and Larry Ellison, chairman and founder, repeatedly asserted. But no one does. I can't name another company that could get away with this other than Oracle. Orwell would love this call!
Are the analysts afraid of speaking their minds on the call? They all play along as if they, too, are happy with the cloud growth and don't care about the rest of the business.
Suffice it to say, though, that the chief reason why there is always muted pressure on this one when it misses -- and it misses quite often -- is that the analysts buy into the shift. They believe. They keep thinking, perhaps, that this is going to be like Adobe (ADBE) , which made the software as a service shift deftly, pretty much only skipping a couple of beats. These Oracle analysts keep waiting, even as the fall-off of the old business to me is accelerating.
Hmm, maybe Salesforce.com's (CRM) Marc Benioff is on to something when he called out Oracle's recent $9.3 billion bid for NetSuite (N) as a "desperation move" to beef up the cloud to offset the legacy drop-off, in a recent interview with Bloomberg. Once that deal is consummated, then you may actually see the cloud equal the hype.
Maybe the soon-to-be closed NetSuite acquisition, desperate or not, gave the analysts another reason to play along last night and keep up the enthusiasm for a company with no real overall growth.
I think Oracle is just going to keep getting the breaks with the analysts, which is why the risk-reward is so favorable. One day they could get it right, or at least look like they get it right -- with a NetSuite-aided cloud initiative at last more than masking the fall-off of the legacy business -- and then the multiple weak buy recommendations will become strong ones, and the stock may at last break free of the $40 level that it's danced around for two straight years.
With Oracle that's the hype. And the hope.