If it seems the cloud computing numbers Oracle Corporation (ORCL) has posted for the past few quarters were a little too good to be true, maybe they were.
That’s what a recent lawsuit filed by now-former Oracle employee Svetlana Blackburn suggests anyway, sending Oracle stock more than 4% lower on Thursday after the San Francisco U.S. District Court filing become public.
Fired in October of last year, Blackburn — a finance manage for Oracle at the time — claims she was dismissed because she refused to fudge the company’s cloud revenues in an upward direction.
Oracle denies any wrongdoing, of course, and is already planning its defense should the case go to court as Blackburn has requested.
The question for ORCL owners is, how much truth is there to the claim?
He Said/She Said
In retrospect, the fact Oracle stock has only lost 4% of its value in the wake of news that all of its recent numbers are suspect says traders aren’t giving too much credence to the claim … at least not yet.
That’s arguably as it should be. While Blackburn has made the claim, it’s not been backed up with any specific evidence that her supervisor instructed her to: (1) “add millions of dollars in accruals to financial reports, with no concrete or foreseeable billing to support the numbers, an act that plaintiff warned was improper and suspect accounting,” or (2) fired her for any other reason than poor performance.
Blackburn says she was given a positive review just two months prior to her dismissal, but a copy of that review has yet to surface … if it ever will.
The matter is as messy as it seems. There is no proverbial “smoking gun,” and even if Blackburn got a glowing review just prior to her termination, most states in the United States are so-called “at will” employment states, meaning your employer can fire you for any reason, or no reason at all.
Most don’t, largely because it’s bad for morale if workers are constantly terrified of losing their job. But, Oracle could have fired Blackburn for a myriad of reasons, which the company will certainly make clear should the case go to trial.
Blackburn will have to prove the company didn’t terminate her for any of those other possible reasons.
It will undoubtedly turn into a he said/she said situation, and Oracle will have an army of employees saying Blackburn’s version of the truth isn’t the most accurate one. Speaking with Fortune, a spokesperson for Oracle claims the company’s cloud revenues were recorded in a “proper and correct” manner.
No Need to Pump Up the Figures?
Not that extreme success is evidence of foul play, but in its most recent quarterly report, Oracle said its cloud-based revenue grew on the order of 60% on a year-over-year basis. The quarter before that, the company reported a 31% improvement in its cloud-driven revenue.
Were the world not clearly in a cloud-driven technology revolution, such growth would be tough to believe, giving weight to Blackburn’s allegations. Those kinds of numbers haven’t been unusual of late, though.
In the fourth quarter of last year, Amazon.com, Inc. (AMZN) said its cloud service, Amazon Web Services, grew revenue to the tune of 69%. For that same quarter — about the same time Blackburn said her boss told her to inflate the company’s cloud revenue — Microsoft Corporation (MSFT) posted a 140% revenue increase for its primary cloud product, called Azure.
It’s possible all three companies are misleading investors. It’s also possible that Amazon and Microsoft are simply winning considerably more cloud business (or converting non-cloud customers) than Oracle is.
It’s just not likely.
Oracle’s numbers aren’t stunningly tough to believe, which makes Blackburn’s claim all the more difficult to believe.
Indeed, with that being said, one has to wonder that if Oracle was willing to falsify its cloud results, wouldn’t it also be willing to falsify all of its numbers and actually report company-wide growth rather than post shrinking revenue numbers?
Bottom Line for ORCL Stock
Oracle has problems to be sure. And, maybe there is something to Blackburn’s claim.
Maybe a particular division wanted credit for revenue that may or may not have been attributable to it. Maybe the core of the question is what actually constitutes “cloud.”
Whatever the case, even if Oracle is guilty as claimed, it will take a Perry Mason-like miracle to prove it in a courtroom.
Never say never, but the case isn’t apt to get much traction in or out of a courtroom.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
