Oracle missing its earnings guidance is like Mariano Rivera blowing a save opportunity, or Bob Dylan putting out a disappointing record. It happens, but not very often. And when it does, the only real question is: Why?
The answer matters beyond the world of Oracle (ORCL) shareholders. Oracle has long been seen as a kind of proxy for corporate spending on information technology. If Oracle's earnings disappointed because of internal problems, that's not such a big deal outside Oracle. If Oracle didn't do much wrong, however, it points to a possible slowdown in IT spending for next year.
So what happened? The enterprise software giant weighed in earlier this week with revenue of $8.8 billion in the three months ended Nov. 30, up 2% from the same period a year earlier but short of the $9.2 billion analysts were expecting. Similarly, non-GAAP earnings per share came in at 54 cents, below the 57 cents the Street had been looking for.
Oracle hasn't fallen short of estimates for at least three years -- a feat all the more significant given the weak economy. As of Tuesday's close, before the company posted its earnings, Oracle had gained 64% over the past three years, against a 40% rise in the S&P 500.
On Wednesday, the stock tumbled 12%. In the past six weeks, the stock has lost nearly a quarter of its value, equal to roughly $40 billion. The S&P 500 is down only 2% in the period. And other software stocks are being dragged down in Oracle's wake: Salesforce.com (CRM) fell 5% Wednesday, SAP (SAP) dropped 6% and VMWare (VMW) slid 10%.
Even as the financial turmoil in Europe and overheated economies in Asia have raised concerns about another global recession in 2012, the tech world has seemed somewhat immune. Most of the discussion focused on the consumer side of the industry -- the ongoing rivalry between Apple (AAPL) and Google (GOOG), the rise of Amazon's (AMZN) tablet, the fate of Zynga's (ZNGA) IPO. The enterprise side is much less visible and -- frankly -- a little unglamorous, but just as important as the consumer side.
And if companies are putting the brakes on IT spending, it could hurt tech stocks across the board. The relative resilience of Oracle's stock and its ability to consistently trump the Street's estimates gave the company an aura of safety. Here was a tech giant that could weather hard times. And if Oracle is feeling a chill in IT spending, what are other software vendors feeling?
The conventional wisdom is that enterprise software can help companies reduce some long-term operating costs in departments such as human resources and customer relations. Cloud computing, an area that Oracle has been pushing into, can also reduce IT costs by handing over storage and maintenance functions to companies that can run vast networks that benefit from economies of scale.
