Oracle Stock Dips on Sluggish Sales and Slow Cloud Momentum

Oracle Corp. shares plunged in after-hours trading on Monday following the company’s announcement of fiscal second-quarter revenue and quarterly revenue guidance that missed Wall Street expectations. This has caused concerns among investors about the company’s ability to compete in the competitive market. 

Here is the firm’s performance in comparison to consensus estimates from LSEG (formerly known as Refinitiv):

• Earnings per share: $1.34 per share (adjusted), exceeding the expected $1.32 per share.
• Revenue: $12.94 billion, falling short of the anticipated $13.05 billion.

Cloud revenue saw a 25% increase, reaching $4.8 billion for the period ending on November 30, following a 30% gain in the previous quarter. This marks the second consecutive quarter of decelerating growth.

Based in Austin and renowned for its database software, Oracle is actively working to expand its cloud infrastructure business to better compete with industry giants such as Amazon.com Inc., Microsoft Corp., and Alphabet Inc.’s Google. However, this endeavor faced a setback in September when Oracle reported its first infrastructure growth slowdown after more than a year of acceleration.

Executives Express Confidence in Oracle’s Prospects

Despite the challenges, Oracle’s executives, including CEO Safra Catz and Chairman Larry Ellison, expressed confidence in the business. Catz mentioned an “astronomical rate” of demand, while Ellison emphasized ongoing investments to expand computing power and cloud services, including the construction of 100 new data centers.

Looking ahead, Ellison projected infrastructure growth to exceed 50% for the next few years. 

The company’s future gains are expected to depend not only on customer demand but also on the availability of graphics processors crucial for data centers powering artificial intelligence workloads, according to Siti Panigrahi, an analyst at Mizuho.

Catz acknowledged that Oracle could have recognized “hundreds of millions of dollars” more in quarterly cloud sales if capacity had been available. For the current quarter, she predicted a total revenue increase of about 6.5%, slightly below the analysts’ average estimate of 7.5%.

Oracle’s Long Term Financial Targets 

Oracle aims for cloud sales, excluding revenue from the Cerner health unit, to grow by approximately 27%, showing an acceleration from the fiscal second quarter. The firm remains committed to its long-range financial targets for the 2026 fiscal year.

The stock experienced a drop to $103.82 in after-hours trading after closing at $115.13 in New York, resulting in a year-to-date gain of 41%, which lags behind the iShares Expanded Tech-Software Sector ETF rally of 55%.

Within the cloud revenue, $1.6 billion came from renting out computing power and storage over the internet, while $3.2 billion originated from applications.

Sales of Fusion software for managing corporate finance experienced a 21% increase in the quarter, along with a similar growth rate for NetSuite, enterprise planning tools targeting small- and mid-sized companies. However, concerns arose about the slower-than-expected growth of the acquired health records business, Cerner.

Management aims to transition Cerner’s legacy software business to the cloud, necessitating changes to contracts with many customers. Ellison noted that half of all existing Cerner electronic health software customers would be on the cloud by February, and he emphasized the rapid shift from a license basis to a subscription basis for all Cerner products. Catz anticipates a decline of 1 to 2 percentage points in Cerner revenue for the fiscal year, asserting that the unit will cease to be a drag on Oracle’s growth after that.