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Oracle drops 12 percent
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October 3, 2000: 5:49 p.m. ET
Oracle's stock dives despite upbeat earnings forecast, new products
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NEW YORK (CNNfn) - Oracle Corp.'s stock plunged 12 percent in late afternoon trading Tuesday, even though the company gave analysts an upbeat outlook about its revenue and earnings the night before and launched a new family of database and application server software.
Oracle (ORCL: Research, Estimates) began the trading day up slightly, but started to lose ground in the afternoon, closing down $9.25 at $69.50 on trading volume that was more than double its daily average. The drop, which came as Oracle met with analysts in San Francisco, shaved about $26 billion from the company's market cap within hours.
Oracle is a participant in the B-2-B e-commerce market, and stocks in that sector fell sharply Tuesday for the second day in a row. As examples, i2 Technologies (ITWO: Research, Estimates) finished down $17.88 at $152, Commerce One (CMRC: Research, Estimates) lost $13.69 to $58.88, and Ariba (ARBA: Research, Estimates) shed $14.59 to $112.47.
Both Oracle and the B2B "pure play" stocks have soared this year and reached very high multiples of revenue and earnings, making them vulnerable to even the smallest item of negative news or rumor. Even after today's drop, Oracle stock is more than triple its 52-week low of $21, and more than 100 times the 68 cents per share it earned in fiscal 2000.
Had given analysts upbeat forecast
At a dinner with securities analysts Monday night, Oracle's chief financial officer, Jeff Henley, and Executive Vice President Gary Bloom gave analysts an upbeat forecast for the company's revenue and earnings over the next 12 months, based largely on sales of its brand new Oracle9i database and application server software and continued growth of its e-Business Suite.
The e-Business Suite adapts a company's marketing, sales, manufacturing, supply chain, financial and human resources operations to the Internet and enables information to flow electronically between these separate departments. 
"Management remains very upbeat and enthusiastic about Oracle's prospects over the next 12 months, driven by a strengthening product cycle, market share gains, continued margin expansion and sustained execution," said CS First Boston analyst Wendell Laidley in a research note.
In the quarter ended Aug. 31, Oracle's sales of software from its e-Business Suite were lower than analysts had forecast, increasing 42 percent to $156 million. Database software sales grew 32 percent to $585 million in that period, while total software license revenue was up 28 percent to $807 million. Henley told analysts that he expects Oracle's e-Business applications sales to pick up steam over the next few quarters.
"Henley expects Oracle's applications business to be operating at full throttle by the third and fourth quarters of fiscal 2001 and remains confident in the potential to deliver blended operating margins of 40 percent for fiscal 2001," Laidley's research note said.
"We continue to believe that Oracle's e-Business Suite approach will garner Oracle increasing success in the applications arena and help this line of business grow from a low 8 percent of revenue to 20 percent or more over the coming years," said Banc of America Securities analyst Bob Austrian in a research note.
However, Austrian also noted Tuesday morning that Oracle's stock has reached a high valuation, selling for 20 times the company's estimated revenue for this fiscal year and a "tough-to-grow-greatly $240 billion market capitalization."
Oracle's $1 million wager
Oracle recently announced a $1 million guarantee that its application server and database software will enable Web sites to operate three times faster than they do currently. The $1 million offer was announced on the company's home page and in a full-page advertisement in Tuesday's Wall Street Journal.
"This offer is not a game," Oracle (ORCL: Research, Estimates) said on its home page. "Your primary goal in working with Oracle must be to improve the performance of your Web site."
Oracle said that its new 9i application server software contains cache technology that takes pressure off busy Web sites by storing and load-balancing frequently accessed Web pages in memory. As a result, this software can handle up to 7,500 Internet requests per second on a single machine with two central processors. Oracle is betting $1 million that the combination of its application server software and its database offering will run Web sites three times faster than sites run on its competitors' software.
"If you have an existing commercial production Web site based on IBM DB2 or Microsoft SQL Server database technology, and you replace your IBM or Microsoft technology with the Oracle9i Application Server and the Oracle8i Database, we guarantee that your Web site will run three times faster than it currently does," Oracle said on its home page. "By this, we mean that your Web site will be able to support at least three times as many page views per second as your old IBM or Microsoft based Web site. If your Web site does not run at least three times faster than before the change to Oracle technology, we will pay you $1,000,000."
Companies that want to win $1 million from Oracle are required to buy the products and services that Oracle recommends and "undertake best efforts" to optimize the performance of their Web site in accordance with the company's recommendations. 
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