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Despite a Revenue Miss, Why Did Oracle Stock Receive an Upgrade?

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Better-than-expected Cloud revenues led to upgrades for Oracle stock

So far in this series, we’ve looked at Oracle’s (ORCL) recently announced fiscal 3Q17 earnings, which highlighted the Cloud segment.

Oracle’s better-than-expected Cloud revenues led J.P. Morgan (JPM) to upgrade Oracle stock from “neutral” to “overweight.” Similarly, JMP Securities upgraded Oracle stock from “market underperform” to “market perform.”

Looking at these upgrades, it appears that Oracle’s growth in Cloud revenues compensated for the decline in the company’s Software License and Hardware Segment revenues.

The optimism regarding Oracle’s transition to the cloud is apparent in various analysts’ opinions. Drexel Hamilton analyst Brian White noted, “After three long years of transition, light on the other side of the cloud.”

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White added, “Oracle’s progress in the cloud over the past 3-4 years has defied all the skeptics and the company has built a formidable cloud franchise. Oracle reiterated its plan to book at least $2 billion in new annual recurring revenue cloud business in FY:17 and the company expects its cloud revenue to be larger than its new software license revenue in FY:18 for the first time ever.”

Oracle’s lack of revenue growth trend continues in fiscal 3Q17

In its recently announced fiscal 3Q17 earnings, Oracle posted revenues and non-GAAP[1. generally accepted accounting principles] EPS (earnings per share) of ~$9.2 billion and $0.69, respectively. Although its EPS beat analysts’ expectations by $0.07, its fiscal 3Q17 revenues failed to meet analysts’ expectations by $60 million.

Despite missing analysts’ expectations, Oracle’s fiscal 3Q17 revenues grew 2.1% on a YoY basis in constant currency terms while its EPS grew 8% on a YoY basis. In the past 12 quarters, including fiscal 3Q17, Oracle’s revenues have missed analysts’ expectations ten times.

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