Why Did Macquarie Research Downgrade Oracle Stock?

Oracle gets a rating downgrade

Oracle (ORCL) stock has been downgraded by Macquarie Research from an “outperform” to a “neutral” rating, as Macquarie reportedly believes that the software giant is “underinvesting in its future.” The stock fell ~1% in premarket trading on June 18.

Oracle stock was down 0.3% on June 17 and closed at $53.13. The stock has returned nearly 19% year-to-date as of June 17 compared to the S&P 500’s return of 15.3% in the same period.

Why Did Macquarie Research Downgrade Oracle Stock?

Oracle’s weak revenue growth

Oracle has been seeing slowing revenue growth for the past six consecutive quarters due to currency headwinds and consistent weakness in the Cloud License and On-Premise License segment. In its last-reported quarter, Oracle’s revenue fell 0.7% YoY (year-over-year), hurt by currency headwinds. The company expects currency headwinds to continue to dent its fiscal 2019 fourth-quarter revenue by -3%. It expects its revenue in the quarter to be flat to down 2% YoY.

The company’s Cloud License and On-Premise License segment’s revenue fell 4% YoY in the third quarter of fiscal 2019, while its hardware revenue fell 8% YoY, and its Services revenue, which doesn’t include its cloud services and software revenue, fell 1% YoY in the quarter.

Though Oracle is aggressively investing in the expansion of its cloud services amid companies’ increasing shift to cloud computing from traditional on-premises setups, the company is still lagging behind established software companies such as Workday and Microsoft. Workday expects its cloud subscription revenue to grow 27%–28% in fiscal 2020, which ends in January 2020.