The year of the Cloud takes no prisoners.
Cloud stocks have been on a tear resiliently combating the leaky macro environment.
Many of my cloud recommendations have been outright winners such as Salesforce (CRM).
However, there are some unfortunate losers I must dredge up for the masses.
Oracle (ORCL) announced quarterly earnings and it was a real head-scratcher.
I have been banging on the table to ditch this legacy tech company since the inception of the Mad Hedge Technology Letter.
It was the April 10, 2018 tech letter where I prodded readers to stay away from this stock like the black plague.
At the time, the stock was trading at $45, click here to revisit the story "Why I'm Passing on Oracle."
The first quarter was disappointing and abysmal guidance of 1% to 3% for annual total revenue topped off a generally underwhelming cloud forecast.
Investors spotlight one part of the business requiring the utmost care and nurturing - its cloud business.
The second quarter was Oracle's chance to revive itself demonstrating to investors it is serious about its cloud direction.
What did management do?
They announced a screeching halt to the reporting of cloud revenue and it would avoid reporting on specific segments going forward.
Undoubtedly, something is wrong behind the scenes.
To withdraw financial transparency is indicative of Oracle's failure to pivot to the cloud and this has been my No. 1 gripe with Oracle.
It is simply getting pummeled by the competition of Amazon (AMZN), Alphabet (GOOGL), and Microsoft (MSFT).
Stuck with an aging legacy business focused on database software, transformation has been elusive.
To erect a giant cloak around its cloud business means that growth is far worse than initially thought to the point where it is better to sweep it under the carpet.
Instead of taking a direct hit on the chin, management decided to wriggle itself out of the accountability of bad cloud numbers.
A glaringly bad cloud business should be the cue for management to kitchen sink the whole quarter and start afresh from a lower base.
The preference to shroud itself with opaqueness is bad management. Period.
Instead of turning over a new leaf, Oracle could be penalized on future earnings reports for the way it reports financials for the simple reason it confuses analysts.
Wars were fought for less.
Bad management runs bad companies. The stock has floundered while other cloud stocks have propelled to new heights - another canary in the coal mine.
Amazon and Netflix are two examples of tech growth stocks that have celebrated all-time highs.
Even rogue ad seller Facebook broke to all-time highs lately.
The champagne is flowing for the top-level tech companies.
As expected, Oracle was punished heavily upon this news with the stock down almost 8% intraday to $42.70, and it sits throttled at $43.60 as I write this.
Diverting attention from the cloud will mire this stock in the malaise it deserves. Shielding its investors from the only numbers that really matter will give analysts a great reason to label this dinosaur stock with sell ratings.
Analysts are usually horrific stock predictors, but they will be able to wash their hands of this beleaguered stock.
Even if the stock goes up, analysts will still be geared toward sell ratings.
Oracle reported a $1.7 billion in total cloud revenue last quarter, a disappointing 9% increase QOQ.
Oracle's cloud revenue is only up 25% YOY.
For an up and coming cloud business, the minimum threshold to please investors is 20% QOQ, and the 9% QOQ expansion will do nothing to get investors excited.
The deceleration of growth is frightening for investors to stomach and Oracle's admission the cloud business is uncompetitive will detract many potential buyers from dipping in at these levels.
In short, Oracle is not growing much. There is no reason to buy this stock.
I always divert subscribers into the most innovative tech stocks because they are most in demand from investors.
Innovative inertia has reverberated through the corridors at its massive complex in Redwood City, California.
A major shake out in product development and business strategy is vital for Oracle clawing back to relevance.
This is the fourth sequential quarter with unhealthy guidance.
Much of the weakness comes from Amazon siphoning business out of Oracle.
Completed surveys suggest the conversion to AWS has one clear loser and that is Oracle.
Cloud vendors are now ramping up their smorgasbord of cloud offerings attracting more business.
The second and third cloud players, Alphabet and Microsoft, have been particularly active in M&A, attempting to make a run at AWS for pole position.
It is most likely that Oracle's capital spending will dip from $2 billion in 2017 to $1.8 billion in 2018.
Considering Salesforce spent $6.5 billion on MuleSoft, a software company integrating applications, an annual $1.8 billion capital expenditure outlay is a pittance and shows that Oracle is functioning at a pitiful scale.
Oracle won't be able to make any noteworthy transactions with such a miniscule budget.
Without enhancing its cloud offerings, Oracle will fall further behind the vanguard exacerbating cloud deceleration.
Oracle pinpointed data center expansion as the targeted cloud segment after which they would chase. Oracle will quadruple two data centers in the next two years.
One of the data centers will be placed in China collaborating with Tencent Holdings Limited to satisfy government rules requiring outsiders partnering with local companies.
Saudi Arabia is locked in for a data center, desperate to attract more tech ingenuity to the kingdom.
Saudi Arabia's iconic state-owned oil giant will form an "Aramco-Google partnership focused on national cloud services and other technology opportunities."
It will be interesting going forward to analyze the stoutness of the data center commentary considering foes such as Alphabet are boosting spending.
Alphabet quarterly spend tripled to $7.56 billion QOQ including the $2.4 billion snag of New York's Chelsea Market skyscraper Google will spin into new offices.
Alphabet has splurged on $30 billion on digital infrastructure alone in the past three years.
That bump up in infrastructure spending is to support the spike in computer power needed for the surging growth across Alphabet's ecosystem.
Apparently, Oracle is not experiencing the same surge.
If investors start to question global growth, investors will migrate into the top-grade names and the marginal names such as Oracle will be taken behind the woodshed and beaten into submission.
Oracle is much more of a sell the rally than buy the dip stock fueled by its growth deceleration challenges.
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Quote of the Day
"If you don't have a mobile strategy, you're in deep turd," - said Nvidia CEO Jensen Huang.
