Oracle’s Earnings

After yesterday’s close, Oracle reported earnings of 14 cents a share. That was in line with expectations, although sales were slightly below forecasts. The company expects to earn 80 cents a share for the next fiscal year, which means the stock is going for about 16 times next year’s earnings. Don’t be fooled, I still think Oracle is overpriced. When you get right down to it, the company’s core business is not growing.

But the sluggish sales of Oracle’s flagship database systems, which had been a mainstay of the company’s growth, surprised analysts. Oracle reported $502 million in combined sales of its database software and “middleware,” additional software used to deliver Internet-based applications. That compared with $494 million in the year-earlier period.

That translates to a growth rate of 1.6%. What does Larry have to say?

Oracle Chief Executive Larry Ellison said he didn’t think “flattish” database results were “indicative of anything,” and primarily were the result of a tough comparison with last year’s results, when database sales grew 20%. “It’s going to be very, very difficult for us to sustain that the following year,” he said.

I’m not sure if the earnings isn’t “indicative of anything.” It may not be indicative of future “flattish” growth. But it’s absolutely not indicative of future strong earnings growth.

I’m also concerned about Oracle’s massive buying spree. The company is going to Seibel, plus it also bought PeopleSoft recently. Oracle has also bought Retek, ProfitLogic and I-Flex, plus several smaller firms. That’s a lot for a company to manage, and I’m generally not a big fan of mergers anyway (Morgan Stanly for more). I would stay away from Oracle until the company shows that it can grow its core business again.

Posted by on September 23rd, 2005 at 11:54 am


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