| _The Wall Street Journal_ March 29, 1990 OTC Focus column
Oracle Systems Tumbles 31% on Report Of Flat Earnings; Volume Breaks
Record
By Craig S. Smith
Special to The Wall Street Journal
NEW YORK--An earnings shock sent the common stock of Oracle Systems
plunging about 31% on record-breaking volume for a single
over-the-counter issue.
Late Tuesday, Oracle reported that its net income for the third
quarter ended Feb. 28 was flat with the year-earlier quarter at 18
cents a share.
Analysts had estimated that the company's earnings for the quarter
would be in the mid- to high-20-cent-a-share range.
The earnings disappointment was all the more disturbing because the
company had reiterated confidence that it would meet analysts'
expectations at recent high-technology conferences around the country.
The earnings news sent investors rushing for the door yesterday
morning, leaving Oracle's stock with a 7 7/8 point loss to 17 1/2.
Trading volume in the issue totaled nearly 21 million shares, the
highest single-day share volume ever for an OTC stock, according to
the National Association of Securities Dealers.
Oracle's drop, along with a sharp drop in Tele-Communications Class A
stock and other issues, sent the over-the-counter market lower while
the New York Stock Exchange averages finished with narrow gains.
Tele-Communications, one of the OTC market's five largest stocks by
market capitalization, fell 1 to 13 3/4 after reporting a
73-cent-a-share loss for 1989, compared with earnings of 15 cents a
share in the previous year.
The Nasdaq Composite Index fell 2.81, or about 0.64%, to 436.69. The
New York Stock Exchange Composite Index, by contrast, finished about
0.20% higher.
OTC advancers trailed decliners, 829 to 1,037. Total Nasdaq volume,
padded by trading in Oracle, was about 132.3 million shares, up
sharply from Tuesday's 106.9 million shares.
The Oracle debacle took the shine off the OTC market's technology
shares, which had re-emerged as market leaders in recent weeks.
Gains in the sector had lifted the Nasdaq 100 Index nearly 10% from
its January lows, far outpacing the advances in other groups. By the
close, the Nasdaq 100 was down 6.48 points to 428.46.
Jack Laporte, president of T. Rowe Price Associates Inc.'s $1 billion
New Horizons Fund, says Oracle's losses haven't shaken his confidence
in owning technology stocks.
``We continue to see the best earnings momentum of all sectors of the
market'' in technology companies, Mr. Laporte says.
But, Mr. Laporte says, the Oracle situation is sure to turn investors
gun-shy toward the OTC technology group for the time being. Similar
earnings disappointments undercut the sector repeatedly throughout
1989.
Oracle has been rising steadily since last August when it traded as
low as 14 3/4. The stock hit an all-time high of 28 3/8 on March 19.
The company, which saw its revenue double in 12 of the past 13 years,
has reached a size at which its growth has begun to slow. Many
analysts now say the company's management may be straining to reach
unrealistic goals.
Rick Sherlund, the analyst who follows Oracle for Goldman Sachs, cut
his earnings estimate for fiscal 1990, ending May 31, to 95 cents a
share from the $1.05 a share previously estimated. Mr. Sherlund also
removed the stock from Goldman's recommended list, lowering the
investment rating on Oracle to a ``hold'' from a ``buy.''
But analysts now say that most of the downside risk has been taken out
of the stock. Smith Barney Harris Upham, which began the day by
cutting its rating to a ``hold'' from a ``buy,'' switched back to a
``buy'' later in the session when Oracle bottomed out.
Based on Goldman's revised 1990 estimate, the stock is now trading at
about 18 times earnings, not a lot for a company whose revenue is
still expected to grow more than 40% in its next fiscal year.
The stock is now trading about 14 times Goldman's revised 1991
estimates of #1.30 a share.
But Goldman's Mr. Sherlund says investors had better take a long-term
approach to Oracle because intervening shocks, such as Tuesday's
earnings report, could limit gains in the stock.
``I expect there is more bad news to come,'' Mr. Sherlund says. ``The
first piece of bad news is rarely the last.''
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