- Stating checks indicate cloud revenue growth will accelerate in the second half of FY16 (end May '16), Goldman's Heather Bellini has added Oracle (ORCL +1.1%) to her firm's Conviction Buy list, and set a $47 target.
- Bellini: "ORCL shares are down 17% ytd (vs -2% for the S&P) as investors continue to have concerns on the company’s ability to shift to the cloud as well as how this shift will impact its financial profile. Specifically, we believe the market has considerable doubts about its cloud (SaaS/PaaS) FY16 (May) revenue growth guidance of 50%, its gross margin target for this segment of 60%, as well as its bookings target of $1.5 - $2.0bn ... We see our thesis evolving over the next three quarters, with the first evidence becoming clearer on its F2Q16 earnings print (expected in mid-Dec) as guidance should demonstrate that promotional pricing is winding down, and customers are renewing at higher levels of [annualized recurring revenue]."
- She adds success in attaining FY16 bookings targets could lead management to guide for accelerating FY17 cloud revenue growth, and that FY16 is will "mark the bottom" for Oracle's op. margin (recently pressured by the cloud shift).
- Oracle has already signaled cloud revenue growth will accelerate in FY16 as bookings convert to revenue. Bellini's move comes after Morgan Stanley, JMP, and Pac Crest downgraded Oracle, while citing concerns about the impact of cloud adoption on margins and/or traditional app/database sales.
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Last month: Oracle unleashes barrage of new cloud apps/services at OpenWorld