Oracle Falls After Failing to Meet Optimistic Cloud Expectations
(Bloomberg) -- Oracle Corp. reported quarterly sales in line with analysts’ estimates after its cloud business failed to meet expectations for higher growth. The shares declined in extended trading.
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Fiscal third-quarter revenue increased 18% to $12.4 billion, just short of analysts’ average estimate of $12.41 billion, according to data compiled by Bloomberg. Profit, excluding some items, was $1.22 a share. Analysts, on average, projected $1.20 a share.
Cloud revenue — the highly watched segment that Oracle has been trying to expand — rose 45% to $4.1 billion in the period ended Feb. 28, the Austin, Texas-based company said Thursday in a statement.
While Oracle’s cloud infrastructure business — renting computing power and storage — has been a relative laggard in the market, analysts have been optimistic the services are gaining customers and helping accelerate growth. The software giant has employed aggressive marketing and favorable pricing in an attempt to win clients from larger competitors Microsoft Corp. and Amazon.com Inc., which have seen cloud division growth slowdowns in recent quarters.
Large cloud deals, including one announced with Uber Technologies Inc., increased investor excitement ahead of earnings, wrote JP Morgan’s Mark Murphy. Analysts at Mizuho Securities said in advance of the results that Wall Street’s estimates for Oracle’s cloud business “appear conservative.”
But the results looked like “a little bit of a disappointment,” Dan Morgan, senior portfolio manager at Synovus Trust, said in an interview with Bloomberg Television. Tyler Radke, an analyst at Citigroup Inc., said the numbers also may indicate weaker demand for information technology amid continuing economic uncertainty.
Shares fell about 4.6% in premarket trading before New York exchanges opened on Friday after closing at $86.87. Oracle has been one of the steadiest tech stocks over the last year, rising 14% during the 12 months through Thursday.
Sales will increase about 16% in the current period ending in May, Chief Executive Officer Safra Catz said on a conference call after the results. The outlook is in line with estimates. Profit, excluding some items, will be $1.56 a share to $1.60 a share, she added. Analysts, on average, projected $1.45 a share.
“We continue to believe the company is navigating the slowdown better than most large rivals,” wrote Bloomberg Intelligence’s Anurag Rana.
Oracle’s digital health records provider Cerner generated sales of $1.5 billion in the period, and Chairman Larry Ellison said the company anticipates even stronger growth for the unit.
“While we are pleased with this early success of the Cerner business, we expect the signing of new health care contracts to accelerate over the next few quarters,” Ellison said in the statement. Catz said the division’s operating margin has increased over 5 percentage points since the acquisition.
More than two-thirds of Oracle’s cloud revenue is generated by business applications such as Fusion software for managing corporate finances and NetSuite’s enterprise planning tools, which are targeted at small- and mid-size companies. Fusion sales increased 25% in the quarter, compared with 23% growth in the previous period. NetSuite revenue jumped 23%, compared with 25% in the fiscal second quarter.
Oracle increased its dividend 25% to 40 cents a share. Ellison, the company’s largest shareholder, “did not participate in the deliberation or the vote on this matter,” the company said. The additional 8 cents a share in quarterly dividends is set to make Ellison about $91.6 million, based on his ownership of more than 1.14 billion shares disclosed at the end of December.
(Updates with premarket trading in seventh paragraph. A previous version corrected the outlook for adjusted earnings per share in the eighth paragraph.)
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