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The Most Stunning Chart From Oracle's Earnings Report

Tyler Durden's picture




 

Moments ago Oracle reported that it missed on both the top line ($11.33 billion vs Exp. $11.48 billion), and the bottom line (EPS $0.92 billion, Exp. $0.95). The company didn't blame snow (blaming Snowden would be more appropriate), and yet despite the 6% tumble in the stock price, the miss in operating results was not the most surprising aspect of the company's Q4 earnings release.

What was? The following chart breaking down Oracle's quarterly spending on stock buybacks versus capital expenditures. It speaks for itself, and also explains very succinctly why despite all the propaganda, the stock market surge is completely fake, driven by nothing more than the Fed and companies buying back their own stock, as is the so-called "economic recovery."

Indeed, despite ORCL buying back $2 billion of its stock in Q4, $10 billion in Fiscal 2014, and nearly $21 billion in the past two years, a massive surge compared to the company's pre-Lehman buyback pattern, the company still missed.

Of course, our readers already knew this: it was a month ago when we presented the "Mystery, And Completely Indiscriminate, Buyer Of Stocks In The First Quarter." Today, with a 1 month delay, the FT figured it out too.

 

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Thu, 06/19/2014 - 16:36 | 4875179 Pinto Currency
Pinto Currency's picture

 

 

Buy gold, silver, platinum, palladium.

And buckle up.

This is going to be a nasty re-entry to reality.

Thu, 06/19/2014 - 16:49 | 4875222 LawsofPhysics
LawsofPhysics's picture

Optimist.  I see plenty of people are still accepting those paper promises in exchange for their labor.

Thu, 06/19/2014 - 17:04 | 4875274 negative rates
negative rates's picture

He's gonna run out of moments around here.

Thu, 06/19/2014 - 18:57 | 4875635 Pool Shark
Pool Shark's picture

 

 

Lowering the 'S' in 'EPS' tends to result in higher numbers that can be touted in CNBS headlines...

Thu, 06/19/2014 - 21:35 | 4876308 old naughty
old naughty's picture

"Today, with a 1 month delay, the FT figured it out too."

There you have it...

Sometimes they took 4-ever figuring things out, no? What was the percent of sheeples still tuning in, again?

Fri, 06/20/2014 - 06:36 | 4877242 Antifaschistische
Antifaschistische's picture

This is the .00001%'ers get uber wealthy plan.   Yes...and Larry takes those paper promises via the Fed and buys his Hawaiian Island.    When the Hawaiians repartiate that Island, maybe Larry will get paper promises in exchange....or a case of pineapples.

Thu, 06/19/2014 - 17:21 | 4875318 Freddie
Freddie's picture

Oracle is a major govt whore that charges Uncle Sam insane prices on their shit.  But Larry was a AL See Eye Aye contractor. 

USA is a joke country police state.

Thu, 06/19/2014 - 16:39 | 4875180 ZerOhead
ZerOhead's picture

So sad. Lower earnings for the Moracle of Omabwaaahahahaaa!...

Thu, 06/19/2014 - 16:43 | 4875214 booboo
booboo's picture

Oracle ORCL not douchebag wrinkle that takes baths with Becky Quick

Thu, 06/19/2014 - 16:35 | 4875182 I Write Code
I Write Code's picture

Buy-backs have nothing to do with making numbers.

Thu, 06/19/2014 - 16:41 | 4875205 Tyler Durden
Tyler Durden's picture

Is that so? What does the PS in EPS stand for?

Thu, 06/19/2014 - 16:56 | 4875251 max2205
max2205's picture

It's all Chinese to me

Thu, 06/19/2014 - 17:28 | 4875337 I am more equal...
I am more equal than others's picture

 

 

 

Err.... EPS, earings per slut?  No, no, it has something to do with E=MC2.

No, no, it has something to do elephant's pounds of shit?

I'm sorry, next questions.

 

Thu, 06/19/2014 - 17:41 | 4875365 Say What Again
Say What Again's picture

Can you imagine trying to run your business with a program written by that guy?

He must work for Microsoft.

 

Post Scriptum

PlayStation

 

The more serious question is; Is this a good use of Capital?  Why not? 

1. I borrow huge amounts of money for around 1%

2. I buy back my stock now

3. Later when I need to raise moar capital, I issue moar float (when the stock price is much lower)

Sounds like a good business plan to me!

</sarc>

Thu, 06/19/2014 - 18:06 | 4875451 Dr Benway
Dr Benway's picture

The funny thing is you just admitted IWriteCode is right.

 

If they both buyback shares and issue shares as per your point two and three, there is no longterm change in shares outstanding. Or actually, since you posit issuing shares at a lower price than the buybacks, there will be an increase in shares outstanding.

 

You pawned yourself.

Thu, 06/19/2014 - 18:15 | 4875497 Say What Again
Say What Again's picture

I can only presume that English is not your first language.

What I said, in a sarcastic voice, is

1: Buy back stock NOW at a high price (using borrowed funds).

2: Sell that stock LATER at a much lower price.

Is it really that difficult to understand?

Thu, 06/19/2014 - 18:32 | 4875518 Dr Benway
Dr Benway's picture

And there will thus be no longterm reduction in shares outstanding, exactly as I said.

And the true purpose of the buyback is thus to temporarily jimmy market prices higher, not to lower shares outstanding.

What part of this do you have trouble comprehending? You pawned yourself.

Thu, 06/19/2014 - 19:34 | 4875813 Double.Eagle.Gold
Double.Eagle.Gold's picture

fuck

you

Thu, 06/19/2014 - 17:02 | 4875266 NotApplicable
NotApplicable's picture

"Photoshop," right?

Just ask Russell Wasendorf, or Madoff's helpers.

Thu, 06/19/2014 - 17:20 | 4875314 Dr Benway
Dr Benway's picture

He's right. Buybacks have nothing to do with reducing number of shares outstanding or increasing EPS, this is just a pretense.

At least in Australia, buybacks are done to directly ramp the "market" price. Companies do buybacks and share issuance alternatively or even at the same time. This proves they are not doing it to reduce shares outstanding.

The plan is to issue shares to parties that have agreed not to sell (eg fund associates) and then buy shares on "market" to jimmy the price.

See for example below from the ASX, where Clearview announces a capital raising and buyback in the very same announcement, openly admitting they will try to jimmy the "market" price. This announcement is a confession of planned securities fraud.

http://www.asx.com.au/asxpdf/20131219/pdf/42lqhxrd16jg1z.pdf

I'm your biggest fan, Tylers, so it surprises me you guys haven't highlighted this!

Thu, 06/19/2014 - 17:47 | 4875393 MrSteve
MrSteve's picture

You obviously know nothing about bear raids or watering stock. Stock buybacks are bull raids.

Thu, 06/19/2014 - 17:53 | 4875412 negative rates
negative rates's picture

Yes Mr. Winkle, we understand.

Thu, 06/19/2014 - 17:45 | 4875387 MrSteve
MrSteve's picture

EPS stands for Every Price Skyward, as in "the stock buyback program was approved by the board of directors in order to increase leverage on the value of the boards' and managements' stock options, by keeping the shares' Every Price Skyward". It's working! What a country!!

Thu, 06/19/2014 - 18:59 | 4875656 ThirdCoastSurfer
ThirdCoastSurfer's picture

Are buybacks a one-way street?  Don't companies hire a broker to execute the transaction?

As such, are these brokers prevented from day-trading the stock, buying, selling, covering, shorting, puts and calls, the gamit, but in the end buying more than they sell or are they limited to buy only by regulation? 

In other words, what is the order flow of a $2 billion dollar a quarter buy-back? 

I see the average trading volume of Oracle is about 17 million shares and the midpoint of the 52 week price is about $36.50; so, $2 billion is about 55 million shares and with 60 trading days in a quarter, 55 million represents about 19% of the volume. 

Thu, 06/19/2014 - 16:42 | 4875209 Ness.
Ness.'s picture

Wouldn't buying back your own stock, thereby reducing the float, have an affect on earnings PER SHARE?

 

Cheers,

 

Simple Jack

Thu, 06/19/2014 - 17:29 | 4875334 Dr Benway
Dr Benway's picture

No, not if you're steadily issuing shares at the same time. So for many companies, this is just a pretense. See my reply above. 

Thu, 06/19/2014 - 17:40 | 4875352 ejmoosa
ejmoosa's picture

What you suggest is not happening.  Oracle had 5.8 billion shares outstanding in 1998.

Today they have 4.45 billion.

 

Verify it with a copy of Valueline.

 

Why would you be making such statements when they are easily proven false?

Thu, 06/19/2014 - 17:38 | 4875362 tarsubil
tarsubil's picture

You can do both at the same time but are they all actually doing that? Is this what Oracle is actually doing?

Edit: ejmoosa answered the question and for Oracle the answer is no. They are in fact using buybacks to manipulate EPS (along with price and bonuses right?).

Thu, 06/19/2014 - 17:43 | 4875375 Dr Benway
Dr Benway's picture

To both of you: I am talking about the buyback machine in general, not Oracle specifically. Please learn to read.

 

Also, in cases where the outstanding shares actually are reduced, the direct effect on market price is much greater than the predicted effect from reduced share numbers. This is easily empirically proven, and proves my point conclusively.

Thu, 06/19/2014 - 17:45 | 4875385 ejmoosa
ejmoosa's picture

Home Depot has been buing back shares.  They still have not made as many total dollars as they did before the recession.

 

But their eps is at all time highs.

 

So you make a generalization that you try to apply to Oracle, which this story is about, and you want us to learn to read?

We gave you specifics.  That trumps inaccurate generalizations every time.

 

 

Thu, 06/19/2014 - 18:00 | 4875435 Dr Benway
Dr Benway's picture

I have stated both a general conclusion and specific examples. I have also provided an empirical proof of said conclusion.

 

You have made zero argument.

 

My point stands: The purpose of the corporate buyback machine is to directly affect "market" prices, and not to reduce shares outstanding. The shortterm effect on "market" prices is greater than that which would have been expected by the reduction in shares (easily empirically proven).

Thu, 06/19/2014 - 19:34 | 4875816 Double.Eagle.Gold
Double.Eagle.Gold's picture

you

suck

dead donky dick

Thu, 06/19/2014 - 19:40 | 4875848 Ness.
Ness.'s picture

It appears you have a problem with words, mate.  Would looking at a chart help?

 

http://ycharts.com/companies/ORCL/shares_outstanding

 

 

Thu, 06/19/2014 - 17:42 | 4875376 ejmoosa
ejmoosa's picture

And to manipulate the public opinion that things are better than they would otherwise appear.

So where do they get the money for these "buybacks"?  

 

I'd suggest all the liquidity starts at the Fed.

 

Thu, 06/19/2014 - 16:44 | 4875219 NoDebt
NoDebt's picture

Unless they're stated on a per-share basis.  Repurchased shares don't count in the denominator of Earnings / Share calculations.  Only the outstanding shares count.

Thu, 06/19/2014 - 17:11 | 4875282 CrashisOptimistic
CrashisOptimistic's picture

Hmm, unless things have changed, repurchased shares go into treasury and are no longer outstanding.

 

Oops, I don't think we're in disagreement.

 

Thu, 06/19/2014 - 19:48 | 4875891 I Write Code
I Write Code's picture

Yes but the projections are then made against the reduced number (and are pre-adjusted for changes in the float), and whether or not they are made doesn't depend on the number of them.

Anyone who red-ticked me here - and the authors of this article - are donkeys.

Thu, 06/19/2014 - 16:50 | 4875238 Everybodys All ...
Everybodys All American's picture

stick to writing code.

Thu, 06/19/2014 - 16:35 | 4875183 pods
pods's picture

So what happens when everyone has eaten the seed corn?

pods

Thu, 06/19/2014 - 16:37 | 4875193 rtalcott
rtalcott's picture

Well...you print more!

Thu, 06/19/2014 - 16:38 | 4875194 NoDebt
NoDebt's picture

They barf it back up (sell the shares again on the open market) to get needed cash for their then-failing operations.  

Thu, 06/19/2014 - 16:47 | 4875233 bonin006
bonin006's picture

They sell the shares they bought back for $50, for $5.00

Thu, 06/19/2014 - 17:12 | 4875294 CrashisOptimistic
CrashisOptimistic's picture

That would be dilutive.

Thu, 06/19/2014 - 16:38 | 4875195 Quinvarius
Quinvarius's picture

They eat the minorities.

Thu, 06/19/2014 - 16:40 | 4875203 Dr. Kenneth Noi...
Dr. Kenneth Noisewater's picture

It comes out in the shit?

Thu, 06/19/2014 - 16:44 | 4875217 Cognitive Dissonance
Cognitive Dissonance's picture

Glad to see Oracle has its eye on the stock price ball.

<You know you're at the end of another business cycle when all they care about is the stock price.>

Thu, 06/19/2014 - 17:31 | 4875345 MrSteve
MrSteve's picture

If corporations grow by selling stock to raise capital and invest the proceeds to grow products, sales and profits; what happens when they buy their stock back? Is this a hard question?

Thu, 06/19/2014 - 17:36 | 4875361 ejmoosa
ejmoosa's picture

It means they see no reason at this time to grow their business or develop new products.

 

 

 

Thu, 06/19/2014 - 16:48 | 4875234 LawsofPhysics
LawsofPhysics's picture

Please, there is no "market" for true price discovery, period.  What part of NO don't people get?  Dumbasses.

Thu, 06/19/2014 - 16:55 | 4875246 NOTaREALmerican
NOTaREALmerican's picture

"True" prices discovery sounds fraught with danger.   There might losers.    It's best to have a system where there are only winners.   This way,  everybody can be above average.

Thu, 06/19/2014 - 17:07 | 4875250 LawsofPhysics
LawsofPhysics's picture

classic, but yes.  nevermind all the innovation that comes from failure, fuck em, kill them all. As one of the "smart and savy" my personal security team is going to dispose of any threats promptly anyway.

Thu, 06/19/2014 - 17:11 | 4875285 negative rates
negative rates's picture

I once knew somebody who snapped because their basement wasn't deep enough, cost um 20 or 30 years to catch up to that mishap. And no it's wasn't me, I trapped mine in the attic.

Thu, 06/19/2014 - 17:12 | 4875292 LawsofPhysics
LawsofPhysics's picture

Not sure what that means, it was an inside joke. Notanamerican has some "interesting" posts, most are non-financial.

Thu, 06/19/2014 - 17:16 | 4875302 fonzannoon
fonzannoon's picture

I'm willing to give it the weird post of the day title, for now. It's early.

Thu, 06/19/2014 - 17:56 | 4875421 negative rates
negative rates's picture

Oh good, then your vote won't count when the time comes.

Thu, 06/19/2014 - 18:00 | 4875434 fonzannoon
fonzannoon's picture

that's good, very good. Double down on the weirdness. 

Thu, 06/19/2014 - 18:22 | 4875521 csmith
csmith's picture

True price discovery died on September 15, 2008.

Thu, 06/19/2014 - 16:53 | 4875240 Rainman
Rainman's picture

Larry must think his stawks is cheap , no ?

Thu, 06/19/2014 - 17:00 | 4875258 buzzsaw99
buzzsaw99's picture

insiders hold like a billion shares so they're only hurting themselves in the long run. [/sarc]

Thu, 06/19/2014 - 17:01 | 4875263 orangegeek
orangegeek's picture

Larry's still banging hot chew toys from Stanford.

 

Um, what's a chew toy? 

 

Well, it's the same as a ham wallet.

 

Oh, right.  Got it!!

Thu, 06/19/2014 - 17:07 | 4875278 starman
starman's picture

Yo " I write code" you forgot the sarc! 

Thu, 06/19/2014 - 17:38 | 4875367 wswarrior
wswarrior's picture

How is that a nearly 6.5% drop in a $190B market cap company does not impact on S&P futures or the broader market?  It amazes me how good earnings news will drive up the broader indices, but misses like this seem confined to the individual stock with no broader market impact.  I guess this is the new normal.   

Thu, 06/19/2014 - 17:50 | 4875398 hegemony
hegemony's picture

tomorrow is a quadruple witch and "they" must have stock and spy's to buy in size. Plus fast money just said oracle will be $45 in a few weeks..... so there's that

Thu, 06/19/2014 - 17:40 | 4875374 css1971
css1971's picture

If Big Data is so important... And Oracle is as Big Data as it gets. How come their numbers are down?

Thu, 06/19/2014 - 18:24 | 4875527 csmith
csmith's picture

Larry missed big data by 5 years.

He's going to get GIG BETA instead.

Thu, 06/19/2014 - 17:46 | 4875391 Squid Viscous
Squid Viscous's picture

larry ellison, scumbag joo ... his sailing experiment is a sad testament to his hubris

Thu, 06/19/2014 - 19:19 | 4875734 world_debt_slave
world_debt_slave's picture

Oracle astounds me, one of the biggest conmen and con jobs ever.

Thu, 06/19/2014 - 19:24 | 4875760 PenguinMan
PenguinMan's picture

As a I.T. Veteran of 25 years, I can't imagine why anyone would use Oracle products anymore?

You have to be heavily invested, and continue to buy thier crap or incredibly stupid since PostGRES came of age in Version 9.x.

Thu, 06/19/2014 - 21:50 | 4876381 rosiescenario
rosiescenario's picture

If you are a director or part of the upper level of management, partially due to our tax laws, your biggest long term means to get rich is through stock options. You need a stock priced as high as possible to max out your option gain.

 

So here we have those supposedly looking out for shareholders' interests incentivized to do stock buy backs which may not be in the shareholders' longer term interests.

 

I wish someone would put together a few charts showing stock buybacks versus insider sells. I think that will make it pretty clear that the shareholders are being fleeced.

Thu, 06/19/2014 - 21:58 | 4876419 rosiescenario
rosiescenario's picture

Here's an example from ORCL....Jeff Henley...the shareholders' money gave him the chance to make a 4X bagger or a cool $21 million.

 

Mar 21, 2014 HENLEY JEFFREYOfficer 750,000 Direct Automatic Sale at $38.26 per share. Mar 21, 2014 HENLEY JEFFREYOfficer 750,000 Direct Option Exercise at $10.23 per share.

 

 

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