It has been over ten years since Oracle’s profits last came in below expectations. So when the company’s earnings report fell short last week, shares tanked the most in nine years.
While net income for the fiscal second quarter rose 17% over the same period last year, revenue rose 2%…the market was hoping for a 7% increase. Sales from the company’s newer hardware division, which it is trying to build, fell 14%. And the company’s key measure of sales, revenue from new software licensing, rose 3%…well below expectations of 11%…and even further below the 21% gain realized in the same period last year.
But the sell-off on the news looks like a bit of an overreaction. The weakness in revenue was the result of delays in customer orders…not an erosion in demand. Corporate IT managers are having to go through extra steps to get approval for purchases, which led to fewer sales as the quarter ended. The company said that underlying demand is still solid.
The question mark for the market is whether Oracle’s earnings report is just a stumbling block, or a signal of a further decline in corporate IT spending. It is more likely just a bump in the road, according to projections from Nucleus Research, which expects 50% of corporations to increase IT spending next year.
At this point, shares of Oracle have been over-punished. The stock dropped into oversold territory last week, with its decline of -10.7% for the week. But I am not quite looking on this as a buying opportunity right now, as the decline technically triggered a sell-signal.