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Bear of the Day: Oracle (ORCL)

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Oracle (ORCL - Free Report) , the $160 billion giant of software and cloud-based services must be finding it harder to move the growth needle these days.

The stock slipped to a Zacks #5 Rank (Strong Sell) recently as analysts lowered estimates for this year and next.

In the last 30 days, fiscal year 2017 (ending in May) saw profit projections drop from $2.59 to $2.42, which actually put EPS growth slightly into the negative.

Revenues for the same period are seen as growing only 1.35% to $37.56 billion, according to the Zacks consensus.

Next year sees EPS estimates falling from $2.83 to $2.68 for just over 10% growth against this year's flat-line. And revenues are expected to grow only 2.73% to $38.58 billion.

The NetSuite Deal

While these estimate moves could keep ORCL in the lower realms of the Zacks Rank for a month or two at least, investors may be looking out further ahead to how the company is planning more strategic growth initiatives.

Oracle’s planned acquisition of NetSuite (N) remains on track after the U.S. Department of Justice recently approved the deal. The antitrust clearance from the DOJ will now enable Oracle to proceed with the all-cash tender offer for NetSuite, which is set to expire on Oct 6, 2016.

NetSuite, founded in 1998, was a pioneer in the cloud computing market, as it was the first company to offer business applications over the Internet. Per Bloomberg, NetSuite has more than 30,000 customers, the bulk of which are small and mid-size companies.

In late July, Oracle offered to buy NetSuite for $109 a share, which equates to approximately $9.3 billion. The company expects the acquisition to be “immediately accretive” to earnings on a non-GAAP basis in the year after the deal closes. The transaction will now enable Oracle to penetrate the small and medium-sized business market segment, where it does not have a strong footing.

Compared to its peers Oracle is a late entrant in the cloud computing market. The company is striving to boost its cloud computing revenues amid slowing new license revenues for on-premise applications. However, we note that cloud revenues formed only 11.4% of total revenues in the recently concluded first quarter of 2017.

The addition of NetSuite is anticipated to improve Oracle’s competitive position in the cloud computing market, which is currently dominated by the likes of Amazon (AMZN - Free Report) , Microsoft (MSFT - Free Report) , and (CRM - Free Report) .

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