Oracle (ORCL): Tug Of War Between Old And New - UBS
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UBS analyst, Brent Thill, reiterated his Buy rating on shares of Oracle (NYSE: ORCL) noting that the "Cloud progress is clear, encouraging, and largely incremental" but "continues to come with an inferior margin profile relative to the onprem biz, and we wonder if the real compression on ORCL's profitability is yet to come, especially if the higher margin infrastructure franchise has yet to even begin its Cloud pivot".
Cloud SaaS/PaaS revs performance were highlights (+82% cc with some help from OPWR and TXTR acquisitions) and declines in new software license were modestly better than feared, but weakness in the hardware biz (mostly legacy, Exadata did well) soft maintenance revs (flat q/q), and 1ppt of unanticipated FX weighed on headline results, driving the ~$90M revs miss. The topline underperformance was further aggravated by a combo of higher opex (onboarding of recent acquisitions), higher tax rate (Cloud overachievement in higher tax jurisdictions) and modestly higher interest from the $14B Jun'16 debt raise which cumulatively contributed to the 3c EPS miss. While Cloud gross billings were healthy (+52% y/y UBS calcs) and +40% y/y ARR growth respectable despite hard comps, CFFO $5.9B disappointed vs. St's $6.1B, with $9.4B of DR in line.
No change to the price target of $44.
Shares of Oracle closed at $40.86 yesterday.
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