Oracle Corp Reported Decline in Financial Performance and Its Market Share, Research Paper Example

This report aims to examine the financial performance of the oracle and its impact on share prices. Oracle is a technology firm that supplies software for information management use. The company develops, manufactures, promotes, and supplies software that supports other firms in managing their data to enhance and prosper in their businesses. Oracle Limited has come a long way to become the global tech firm that it is currently. The company had positive financial performance until 2019, when it reported a decline in financial performance and market share, which was heavily impacted by the adverse effect of the COVID-19 expense incurred in share repurchase. The company’s revenue is generated from the development and promotion of computer hardware systems and Oracle Enterprise, a globally well-known database technology.

Research question

The following are some of the critical research questions in this report:

• Did the company achieve its sales target in the 3^rd quarter of its reporting?

• How did the decline in sales forecast affect the company’s market share price?

• How did COVID-19 affect the company’s sales forecast and the decline in share prices?

Problem statement

Oracle Limited earned $39.69 billion in revenue for the fiscal year ending May 2020, representing a 1% decrease from the previous fiscal period. The reduction in revenue was a result of the COVID-19 epidemic. The income generated from cloud service subscriptions, license updates, and software products was $27.3 billion, representing a 2.99% annual growth. At the same time, the most recent sales of licenses for local businesses were $5.99 billion (Oracle.com, 2021). Oracle Limited experienced a reduction in share price after its software products reported a decline in quarterly income, thus failing to meet the investors’ forecast demand. 

The company experienced a decline in revenue from its equipment sales like servers, storage systems, and network technology by 7%, representing sales of $3.45 billion. The services made the company generate a quarterly income of $3.11 billion, representing a reduction of 3.99% compared to the annual performance, despite the infrastructure and applications.

According to Bloomberg, the firm’s earnings, without some items, are estimated to be 95 cents to 99 cents per share in the quarter ending August, but investors forecast $1.029 per share. According to Catz, the numbers are due to the growth in investment in the cloud. The company blamed its weak performance on an adverse miss in the 3rd quarter software revenues and warned that its weak hardware business would lose more market share during the 3rd quarter, thus driving its market share 8% downward as of Wednesday.

Analysis of problems and research

The Decline in Sales Revenue

The company’s 2^nd quart GAAP outcome was severely affected by the payment of damages linked to a ten-year-old dispute that surrounded the employment of previous chief executive officer Mark Hurd. The reimbursement led to an operating loss of $82 million in the 2^nd quarter and a decline in per-share price of $0.45. The 2^nd quarter of non-GAAP operating revenue increased by 6% to $4.99 million, and earnings per share increased by 13.99% to $1.2 per share price. Investors bid up the oracle stocks by 26% in the year 2021 with speculation on cloud computing as Catz and Larry Ellison, the company’s executive chairman, made efforts to boost sales revenue by projecting on cloud computing (Randewich, 2013).

However, the firm lags significantly behind the market leaders, such as Microsoft, Google, and Amazon, in revenue collection from cloud computing. The revenue growth of Oracle in the last quarter did not meet its shareholders’ expectations. Oracle Limited announced a 0.99% reduction in annual revenue and a 5.99% decline in its 4th quarter sales, compared with last year’s quarter result (Tadviser.com, 2021).

The supplier’s annual revenue was $39.99 billion, and the fourth quarter was $10.49 billion. The company’s earnings report focused on “cloud services and its license support” income, which grew by 1% per annum to $5.79 billion and 3% in “constant currency.” The license income for non-premise was $1.99 billion. In the May quarter, the world’s third-largest software maker targeted a one to eleven percent increase in the latest software licenses and internet-based subscriptions, a sign of future financial growth (Witkowski, 2020). Nonetheless, investors were focused on the two-percent drop, which fell short of the Wall Street target for the February quarter.

The February quarter sales of Oracle did not hit the target, and the executive blamed the weak sales performance that had hardly affected it since November 2011. Oracle Limited is also struggling in its hardware sector and facing stiff competition from International Business Machines Corp. and SAP AG in cloud and internet-based software.

Oracle’s Decline in Market Share

In December 2019, it was evident that Oracle Limited would purchase its shares, plunging into debt. In the last three years since 2016, the firm has incurred $75 billion in share repurchases, which was partly acknowledged through the issue of bonds. A total of nearly $4.2 billion was incurred in stock resources over the last five quarters by early December 2019, which far exceeded the free cash flow of $20 billion. Despite this, according to FactSet Research, Oracle remains in the top ten, leading by $17 billion. In the short term, the company’s financial plan has already led to many issues that negatively affect its stock market reputation, leading to a decline in its market shares (Wsj.com, 2021).

The company’s share prices declined during the last financial period after the firm reported a decline in sales growth and provided a financial situation that failed to meet its targets for the present period. The global 2^nd-leading software maker had revenue growth of 2% in the 3^rd quarter (Wsj.com, 2021), but on constant growth, the revenue was flat, which failed to meet the firm’s forecast—the revenue projection for the current period. Cloud service and license support income grew by 5% per annum in the 3^rd quarter but did not meet its target ($7.249 billion against $7.279 billion). The cloud license and on-premise services generated a small profit of $1.279 billion, compared to the expert forecast of $1.299 billion.

The firm’s ERP fusion application for controlling corporate finance experienced income growth of 30% in the 3^rd quarter, even though the growth rate declined from 33% in the last 2^nd quarter. NetSuite’s ERP software aimed at SME businesses increased by 23.99% in the 3^rd quarter (Randewich, 2013). The company believes that clients have moved to oracle service from its competitor SAP SE, and oracle share prices continued to decline drastically, declining deeper to 4.99% on the projection. Oracle stock closed at $81.65 in New York, up nearly twice as much as the S&P 500 Index this year.

Conclusion

From the above revenue and market share price analysis, it can be concluded that the Oracle Limited Hardware Segment, which was bought for $5.59 billion from Sun Microsite in 2010, declined to $670 million from $870 million in the previous quarter. The revenue earned from this division declined in the 3^rd quarter because it closed the Sun contract, and the company’s chief executive officer anticipated that the hardware system income would increase in the 4^th quarter. Oracle Limited predicted that its hardware products would result in a 12% to 22% decrease in revenue.

The company’s revenue failed to meet its target by 4.5%; this is believed to be the worst performance since November 2011, when it experienced a revenue decline of 4.5%. In summary, the company’s revenue declined by 1% to $9.09 billion, failing to hit the target of $10.38 billion as anticipated by Thomson Reuter experts. GAAP net profits remained unchanged at $2.5 billion, while GAAP earnings per share increased by 6% to 52 cents, up from the previous fiscal period. The company’s adjusted earnings per share were 65 cents, which was below the 66 cents forecast by experts. Share prices in the software firms declined by 8% to $32.94 after the close of NASDAQ at $35.77.

References

Oracle.com. (2021, December 9). Oracle announces fiscal 2022 second-quarter financial results. Oracle. https://www.oracle.com/ae/news/announcement/q2fy22-earnings-release-2021-12-09/

Randewich, N. (2013, March 20). Oracle blames sales force for Q3 miss, stock drops. Reuters.com. https://www.reuters.com/article/us-oracle-results-idINBRE92J18E20130320

Tadviser.com. (2021, June 25). Oracle Financial Performance. TAdviser.ru. https://tadviser.com/index.php/Article:Oracle_Financial_Performance

Witkowski, W. (2020, June 16). Oracle revenue hurt by pandemic, return to growth a coin-flip for this quarter. MarketWatch. https://www.marketwatch.com/story/oracle-revenue-hit-by-pandemic-stock-drops-in-after-hours-trading-2020-06-16

Wsj.com. (2021, December 24). ORCL | Oracle Corp. Financial Statements – WS. https://www.wsj.com/market-data/quotes/ORCL/financials. https://www.wsj.com/market-data/quotes/ORCL/financials/annual/income-statement