Consider Shorting Oracle Following Tibco's Guidance

I wanted on chime in on the TIBCO Software (NASDAQ:TIBX) news after the business software maker forecast third-quarter earnings below analysts' estimate as it experienced a large amount of potential business fall out in the last few days of the quarter.

Jefferies is taking their tgt on TIBX to $7.50 from $9 saying August quarter license miss indicates that financial services IT spending may be slowing because of mortgage and credit market deterioration. TIBCO derives ~25% of its quarterly revenue from financial services. The worldwide nature of the miss bolsters the notion of global credit deterioration.

Other companies with particular exposure to the financial services vertical include BEA Systems (BEAS) with approx. 17% of license revenue, VASCO (VDSI) with 85% revenue, and Red Hat (RHT) with an estimated 20% revenue exposure. Firm notes that BEA saw healthy financial services revenue in its July quarter,implying the weakness seen by TIBCO is isolated to August and may continue going forward.

Notablecalls: I think TIBX may be the canary on the coal mine for other companies with expsoure to financial services. Note that even NTAP called demand from domestic financial services weak in its recent 1Q (July) negative pre-announcement.

Jeffco's highlights BEAS as one of the co's most at risk. I agree with their thinking and I believe the stock may get hit today following TIBX's news. Yet, it's not quite my favourite short as the stock has come down from its recent highs already.

I'm offering you Oracle (NASDAQ:ORCL), which derives about 10-15% of its revenues from the financial services area. Sell-side checks didn't pick up any weakness at ORCL 2 weeks ago but that may be changing now as surveys that call for slower IT spending growth in '08 are starting to pop up here and there.

That does not mean Oracle's 1Q will outright disappoint, but that some of the "beat and raise" upside potential for next year will likely be trimmed. With the stock near recent highs on heels of rising tide of interest into large-cap tech, I see it as vulnerable.

I think ORCL may represent an interesting shorting opportunity not only for the ultra s-t but as a swing trade.

Looks like Merrill Lynch is taking their rating on TIBX to Neutral from Buy.

Comments

[DennisByron(Research2.0)]

Good logic but keep IBM in mind as well.

Financial services made up 27.5% of IBM's revenue in CY 2006, a higher split than BEA, Oracle and TIBCO (according to the numbers above). Of course, that revenue includes more than just technology (as does BEA's, TIBCO's and especially Oracle's revenue). IBM's success outside the U.S. may protect it from the U.S. subprime thing but apparently TIBCO's international business did not protect it.

[DanielJacome]

I always admire you writing, NC, but keep in mind:

The Jan 2008 10 strike calls for TIBX are going for 30c, on the ask. Tempting, that is 2 months out, going for 30c, and the upside on the common to be @ the $ is a 25% move from here. Someone SERIOUSLY thinks TIBCO will be acquired by the 3rd week of January....