Tuesday, May 21, 2024

Oracle Stock Sinks 12% On Database Software Firm’s Lackluster Earnings


Oracle (ORCL) shares opened Tuesday down by more than 11% after posting disappointing first-quarter results and revenue guidance short of views. The rapid tumble for Oracle stock may be a result of “expectations getting ahead of themselves,” according to one analyst.




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The database software and cloud computing giant said Monday that its adjusted earnings rose 16% year over year to $1.19 a share for its fiscal first quarter ended Aug. 31. Revenue climbed 9% to $12.45 billion.

Analysts had expected Oracle to earn an adjusted $1.15 a share on revenue of $12.45 billion, according to FactSet.

In a call with analysts following the report, Oracle Chief Executive Safra Catz gave an outlook for the current quarter that was below analyst expectations. The company expects to earn $1.32 per share for the current quarter on revenue growth of 9% at the midpoint of the company’s range.

Oracle stock was trading down 12.2% to 111.20 in recent action on the stock market today. During the regular session Monday, Oracle rose 0.3% to close at 126.71.

Oracle’s cloud services revenue climbed 30% to $4.6 billion, compared with 54% cloud revenue growth in the fourth quarter. Further, Oracle’s cloud infrastructure business saw revenue rise 66% year over year to $1.5 billion for the first quarter.

But the company’s older business lines continued to struggle. Cloud license and on-premise license revenues fell 10% to $800 million.

Oracle Stock: Rising Ahead Of Earnings

Ahead of the earnings report, shares of Austin, Texas-based Oracle climbed on a pair of upgrades from UBS and Barclays. Both reports cited the potential for artificial intelligence applications to drive demand for Oracle’s cloud businesses.

Oracle stock was up 54.5% on the year entering trading Monday.

“While ORCL shares are down this morning, we think this is more the case of expectations getting ahead of themselves vs. any major surprises as it relates to the fiscal Q1 print,” Evercore ISI analyst Kirk Materne said in a client note Tuesday.

Evercore ISI maintained an in-line rating for Oracle stock and bumped its target price up to 131 from 125.

In the earnings release, Oracle Chairman and Chief Technology Officer Larry Ellison said AI development companies had signed contracts to purchase more than $4 billion of capacity in Oracle’s cloud platform. That’s twice as much as the company had booked by the end of its fiscal fourth quarter ending in May.

“For long-term investors Q1 had the right messages,” Barclays analyst Raimo Lenschow said in a client note Tuesday. “Cloud beat consensus, deferred revenue and RPO (remaining performance obligations) grew nicely and the excitement level around AI remains very high.”

Barclays maintained an overweight rating but lowered its target price for Oracle stock to 147 from 150.

Cerner In Transition, Watching CapEx

Oracle acquired health-care data systems giant Cerner in 2022 for $28 billion. Oracle is in the process of transitioning Cerner’s business into the cloud and a recurring-revenue subscription model. That transition is creating “some near-term headwinds” for revenue from the business, Catz said. 

In a note to clients Monday, Stifel analyst Brad Reback said capital expenditures were down about 25% year over year for the quarter.

“We find this year-over-year decline to be very surprising given the company’s very positive comments regarding customer demand and its existing AI backlog as well as the accelerating AI hardware arms race at the other major CSPs (cloud service providers),” Reback wrote. His report maintained a hold rating and 120 target price.

The Stifel report added: “After a 55% run year-to-date, given the pedestrian quarter and capex guidance (leading indicator) we would not be surprised to see the stock take a breather as investors digest mixed results.”

Oracle Stock: Technical Ratings

Before earnings, ORCL shares were in a cup base with a 127.54 buy point, according to MarketSmith pattern recognition.

According to the IBD Stock Checkup tool, Oracle has a Composite Rating of 95 out of a best-possible 99. The rating means Oracle stock currently outperforms 95% of all stocks based on fundamental and technical stock-picking criteria.

In addition, shares have a Relative Strength Rating of 95 out of 99. That rating measures how a stock’s price performance over the last 52 weeks holds up against other stocks in IBD’s database.

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