Oracle shares sink 7% as Wall Street freaks out over a surprise decision not to share specific cloud numbers (ORCL)

Safra Catz and Mark Hurd

Oracle's shares sunk 7% on Wednesday following news that the company would no longer report metrics for cloud, a segment once seen as vital to the company's growth.
Oracle characterizes its new reporting structure as a more accurate way to reflect how customers use its software licenses. The company says that customers are buying more traditional licenses, but using them in the cloud.
Investors, many of whom see cloud growth a vital to their understanding of the company, were skeptical of Oracle's move.

Oracle traded down over 7% on Wednesday, following a rebellion from investors after the company made the decision to stop reporting specific metrics for its cloud business. That cloud business was once believed to be the database giant's saving grace against its younger, fast-growing rivals at Amazon and Google.

In a call with investors Tuesday, CEO Safra Catz characterized the newly consolidated reporting structure as a more accurate way to understand Oracle's complex business, in which companies frequently buy on-premise licenses, but then go on to use those licenses for cloud services.

"Previously, all of those licenses and its related support revenue would have been counted entirely as on-premise, which clearly it isn’t," Catz said.

But even the most bullish of investors were unconvinced of the move. Some analysts have suggested that even if the move is justified, it "overshadows" an otherwise successful earnings report.

"As investors seek additional information to try to garner confidence on the ability and timing of the higher-growth parts of the business overcoming the drags of declining legacy businesses, Oracle management went the opposite direction by consolidating revenue segment breakdown into just four categories," wrote Morgan Stanley analyst Keith Weiss, who favorably rates Oracle as overweight.

Barclays analyst Raimo Lenschow, who also rates Oracle as overweight, was more sympathetic to Oracle's decision, but wrote that it could take a toll on the stock price for weeks to come.

"We get management's dilemma here due to an increasingly blurred picture between what is cloud usage and what is on-premise usage," Lenschow wrote. "However, investors will likely need a few quarters to get comfortable here."

Sitting on the more skeptical end of the spectrum is Pat Walravens, an analyst with JMP Securities, who has a neutral rating on the stock.

"The bear case on Oracle all along has been that they say the numbers the way they want to present them," Walravens told Business Insider. "When you look at the bottom line, there is really no growth."

Walravens highlighted Oracle's decelerating growth in the cloud, which fell from 51% year-over-year growth in Q1 2018 to just 21% in Q4 2018.

But Walravens said that it's not just about cloud metrics. He sees the reporting change as part of a systemic issue with Oracle and he's interested in seeing a "pretty fundamental change" in how management approaches its business.

"The way they think about their business is that it's about winning. Larry Ellison loves to win," Walravens said. "I think what you need to see them focus on is their customers winning. They really need to become more customer centric."

Ultimately, though, even Walravens thinks there's no reason to panic, and that Oracle still has a lot going for it.

"It's super profitable, it generates a lot of free cash-flow and it's not very expensive," he said.

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