Author Archives: Scalper1

Oracle Earnings: Can Rising Cloud Make Up For Legacy Fall?

Analysts expect Oracle ( ORCL ) to show a fourth consecutive quarter of year-over-year earnings and sales declines in its Q3 fiscal 2016 report after the close Tuesday. The business software giant rose 2.4% to 38.95 Friday, hitting a 3-month high and rising back above its 200-day moving average. Oracle stock fell 0.6% to 38.70 in the stock market today , holding above the 200-day. Oracle stock remains 14% off a more than one-year high set June 17, and nearly even with its 38.91 close on Dec. 16, right before its fiscal Q2 earnings release showed shrinking earnings and sales. That report sent the stock sliding to a 25-month low of 33.13 on Jan. 20. “The stock is down 1.1% since (fiscal 2016’s second-quarter) earnings, outperforming the S&P 500, down 4.0%, given the general rotation out of growth stocks into more value names like Oracle,” wrote Nomura analyst Frederick Grieb in a research note Thursday. “While metrics for cloud revenue growth have been solid, investors remain concerned by what the potential cost will be to the legacy business, as well as the potential impact to margins during the transition.” Meanwhile, Pacific Crest Securities says more business users expect to increase spending on software-as-a-service (SaaS) from Microsoft ( MSFT ) than any other vendor, followed by spending increases for Oracle, then rivals SAP ( SAP ),  Salesforce.com ( CRM ) and others. Microsoft stock closed up 2% to 53.07 Friday, then advanced 0.2% on Monday. SAP gained 2.3% to 78.65 on Friday, tacking on 0.1% on Monday. Salesforce rose 1.3% to 71.63 on Friday, then climbed 0.8% on Monday, finding resistance at the 200-day line. Analysts expect Oracle’s legacy-software license sales to continue falling faster than increasing cloud-subscription sales will rise, at least in the short term. Those polled by Thomson Reuters now model total Q3 revenue down 2% from a year earlier to $9.13 billion, revised down from $9.28 billion, estimated when Q2 earnings were released. They see adjusted EPS of 62 cents, down 9% from a year earlier and down from the 65 cents they estimated three months ago for Q3. In a conference call with analysts after the Q2 release, CEO Safra Catz guided Q3 revenue to a $9.08 billion midpoint and earnings to a range of 60 to 63 cents per share minus items. Anticipating more acceleration of cloud revenue in the second half of the fiscal year for Oracle, Nomura’s Grieb said: “It will be important to make sure that the company is not losing share to the competition. Strong cloud growth rates supported the business until the steep license revenue declines in the last few quarters suggested that the company may not be successfully converting on-premise customers to the cloud. “Investors are concerned that Oracle is not only cannibalizing the on-premise license business, but also offering aggressive incentives to sign cloud customers.” Nomura maintains a buy rating with a 44 price target on Oracle. Aggressive discounting of subscription sales might be why Pacific Crest Securities analyst Brendan Barnicle found feedback from Oracle customers better than expected. “Even though cloud is lagging with existing customers, it is doing better with new customers and cloud revenue recognition on existing deals is likely to drive upside to cloud expectations,” Barnicle wrote in a research note Thursday. “Among SaaS vendors, Oracle showed well in the recent Pacific Crest CFO survey.” He added that feedback about on-premises “applications was surprisingly positive,” particularly in the installed base. “We had little feedback on the database and infrastructure businesses. As a result, we see upside to the Cloud SaaS and PaaS  (platform-as-a-service) revenue expectation of $554 million and overall revenue expectation of $9.127 billion,” Barnicle wrote. “We are less confident on EPS upside. EPS consensus of 62 cents seems a bit high, so we expect in-line EPS.” Pacific Crest carries Oracle with a sector weight rating, akin to a hold rating. In his recent survey of CFOs, Barnicle said that 46% plan to increase SaaS spending in 2016 with Microsoft, followed by 26% with Oracle, 25% with SAP, 16% with Salesforce.com, and about 12% each with HubSpot ( HUBS ) and Paylocity ( PCTY ). Image provided by Shutterstock .

Redbox Owner Outerwall Doubles Dividend, Explores Possible Sale

Automated retail kiosk operator Outerwall ( OUTR ), parent company of Redbox and Coinstar, late Monday doubled its quarterly dividend and said its board is exploring “strategic and financial alternatives to maximize shareholder value.” Outerwall has been under pressure from investment firm Engaged Capital of Newport Beach, Calif., to take action to improve its value. On Feb. 18, Engaged Capital, which owns 14.6% of Outerwall’s shares, sent a letter with its recommendations to the company’s directors. Those recommendations included exploring a transaction to take the company private. Engaged also said Outerwall needs to better manage its cash and cut costs. It recommended discontinuing share repurchases, paying down debt and increasing its dividends. Further, it said Outerwall should shut down or sell its struggling ecoATM business, which buys and resells used smartphones and tablets. After the market close Monday, Outerwall issued a press release saying that it has retained Morgan Stanley as its financial advisor and Perkins Coie as its legal advisor in exploring alternatives for the Bellevue, Wash.-based company. Outerwall also raised its quarterly dividend to 60 cents a share from 30 cents a share. Outerwall stock jumped 9% in after-hours trading. In the regular session Monday, Outerwall stock rose a fraction, to 34.39. Shares have plunged nearly 60% since touching a record high in July. “The increase of our quarterly dividend to this sustainable level, and the decision to explore strategic and financial alternatives both clearly demonstrate that the Outerwall board of directors and management team are committed to acting in the best interests of the company and all shareholders,” Outerwall CEO Erik Prusch said in a statement. “The board and management team will evaluate all options thoughtfully and carefully with the support of our advisors. “Throughout the review process, Outerwall will remain focused on executing on our operational plans, managing our businesses for profitability and cash flow, and continuing to align costs with revenue to create operational efficiencies, while returning significant capital to our investors.” Challenging fundamentals for Outerwall could a roadblock to big strategic moves, Dougherty analyst Steven Frankel said in a research report Monday. He rates Outerwall stock neutral. “While we applaud management’s willingness to explore its strategic alternatives, we expect the process could be hamstrung by the material fundamental challenges that the company faces,” Frankel said. “Redbox continues to face stiff headwinds from box office volatility, the shift in consumer viewing toward episodic TV and the ubiquity of streaming, while ecoATM looks to us as a sub-scale business challenged by Apple ( AAPL ) and the carriers’ more aggressive push to repurchase old devices.” Redbox is being challenged by consumers opting more to use streaming services like Netflix ( NFLX ) and video-on-demand offerings from their pay-TV providers. RELATED: Redbox Faces Hit From Accelerating Shift To Streaming Video