Oracle: Everything Is Great, Until It Isn't
"Funny how fallin' feels like flying...for a little while."
-Bruton/Nicholson
This song lyric reminds me of the old saying about momentum stocks: they continue going up and up...until they don't. We've seen many companies, stocks, and stories over the year that appear to have the ability to defy gravity, until suddenly gravity (ie reality) enters the picture.
As I re-read Oracles most recent earnings call transcript, I could not get the song out of my head, which is the source of the lyrics above. As usual, the outlook is overly rosy, as Oracle touts their market domination, the 'flexibility' of a business model founded on customer exploitation, and their 'old-reliable' of raising subscription prices without care. To their credit, each of these tactics have produced consistent financial success.
However, for the first time, I think we got a hint of how the 'flying' may be shifting to 'fallin'. While Oracle met their sales estimates (by the slightest bit) and exceeded earnings, there was a major chink in the armor: Their receivables on the balance sheet grew 47%+ to $6.6B and increased 19% year-to-year. As any good forensic accountant will tell you, any time your receivables are growing at nearly 3x your sales, their is typically some good old fashioned 'deal-stuffing' going on.
So, who knows what this means for the near-term or long-term, but it is certainly more than 'blip' on the balance sheet. As the saying goes, all the positive momentum that they espoused will continue...until it doesn't.
-Bruton/Nicholson
This song lyric reminds me of the old saying about momentum stocks: they continue going up and up...until they don't. We've seen many companies, stocks, and stories over the year that appear to have the ability to defy gravity, until suddenly gravity (ie reality) enters the picture.
As I re-read Oracles most recent earnings call transcript, I could not get the song out of my head, which is the source of the lyrics above. As usual, the outlook is overly rosy, as Oracle touts their market domination, the 'flexibility' of a business model founded on customer exploitation, and their 'old-reliable' of raising subscription prices without care. To their credit, each of these tactics have produced consistent financial success.
However, for the first time, I think we got a hint of how the 'flying' may be shifting to 'fallin'. While Oracle met their sales estimates (by the slightest bit) and exceeded earnings, there was a major chink in the armor: Their receivables on the balance sheet grew 47%+ to $6.6B and increased 19% year-to-year. As any good forensic accountant will tell you, any time your receivables are growing at nearly 3x your sales, their is typically some good old fashioned 'deal-stuffing' going on.
So, who knows what this means for the near-term or long-term, but it is certainly more than 'blip' on the balance sheet. As the saying goes, all the positive momentum that they espoused will continue...until it doesn't.