Oracle slides as JPMorgan cuts rating on business lost to Amazon, Microsoft
Shares of Oracle (ORCL) are sliding after JPMorgan analyst Mark Murphy downgraded the stock to Neutral, citing negative results from a survey of Chief Information Officers about their spending.
In a research note this morning, JPMorgan’s Murphy downgraded Oracle to Neutral from Overweight as specific metrics in the firm’s large-scale CIO survey have arced over into negative territory.
The analyst told investors that while Oracle’s shares have risen from the $30s into the high $40s in the last 2 years, the company’s fundamental performance has remained inconsistent. Citing his survey of 154 CIOs, Murphy noted that Oracle received the largest number of indications for planned spending contraction this year, materially more than the second-worst company, which was IBM (IBM) with 25 indications of spending contraction.
Further, while ranking the top 8 or 9 mega-vendors in terms of who will be most critical and indispensable to CIOs’ IT environment in the future, Oracle only received 6.5% of votes, down from 11% in previous surveys, the analyst highlighted.
At the same time, Murphy pointed out that Amazon AWS improved from 9.5% of votes last year to 14.9% of votes this year, creating the appearance of a “sucking sound” out of Oracle and into AWS.
The company also ranked number 8 in terms of association with Digital Transformation projects, disappointing relative to its scale and lagging behind the likes of SAP (SAP), IBM, and Cisco (CSCO), he added, noting that despite Oracle’s efforts to build a Cloud presence, it rated no better than SAP in terms of association with Cloud Computing plans, and is nowhere close to the leaders Microsoft, Amazon, and Google (GOOGL; GOOG) in this respect. Oracle was mentioned by only 2% of the CIOs as the platform that will be “most integral” to their cloud computing plans, Murphy said.
Overall, the analyst questions where Oracle’s business and stock are heading in the next couple of years if the largest-scale CIO survey shows Oracle now has negative spending intentions, is lagging in Digital Transformation projects, is trailing in Cloud Computing plans, its databases are being unplugged in favor of Microsoft and Amazon databases, its applications are being unplugged in favor of Salesforce (CRM) and Workday (WDAY) applications, and customers are weary of its unpopular commercial tactics.
Murphy also lowered his price target on Oracle’s shares to $53 from $55.
In a research note of his own, Nomura Instinet analyst Christopher Eberle lowered his price target for Oracle to $60 from $64 ahead of the company’s fourth quarter results on June 19.
The analyst trimmed his estimates to account for currency and expectations for more modest revenue acceleration in fiscal 2019. He remains optimistic, however, on Oracle’s transition and model growth reacceleration as the year progresses. Eberle reiterated a Buy rating on the shares.
In Wednesday’s trading, shares of Oracle dropped almost 5% to $46.14.
To read timely stories similar to this, along with money making trade ideas, sign up for a membership to Stockwinners.
This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility.