Updated at 7:16 am EST
Oracle (ORCL) – Get a free report Shares fell sharply on Tuesday after the cloud-focused business software group issued another tepid near-term sales forecast, citing increased competition and a pullback in business spending offset a mixed third-quarter earnings report.
Oracle said adjusted earnings for the three months ended in October rose 11% from the same period a year earlier to $1.34 per share, beating Wall Street forecasts by 2 cents. Group revenue rose 5.4% to $12.94 billion, just shy of analyst estimates, as overall cloud revenue growth slowed from the last quarter to around 25%.
Looking ahead to the current quarter, Oracle estimates revenue growth in the region of 6% to 8%, largely matching the midpoint of Wall Street estimates. Earnings, Oracle said, are pegged in the region of $1.35 to $1.39 per share, again matching Street forecasts.
Management also repeated its year-end targets of a 45% operating margin and 10% annual profit growth.
Oracle: demand for cloud infrastructure is “broad”
“Demand for Oracle's cloud infrastructure services and new cloud data centers is broad,” Chairman Larry Ellison told investors on a conference call Monday night. “It is driven not only by generative ai customers, but also by nation-states purchasing sovereign cloud data centers from Oracle, as well as large banks, telcos and industrial companies purchasing cloud data centers dedicated Oracle.
“And perhaps most interesting is the demand from other hyperscalers and other cloud service providers co-locating and connecting their clouds to Oracle's cloud data centers,” he added. “In the coming months, we will activate 20 new Oracle cloud data centers co-located and connected to Microsoft Azure as part of our joint multi-cloud initiative.”
Oracle shares fell 8.6% in premarket trading, indicating an opening price of $105.08 each. The move would reduce the stock's gain in 2023 to around 30%.
“On the positive side, Oracle has three good growth drivers in its (software-as-a-service) business ($3.2 billion, 14% growth), Gen2 infrastructure services ($1.6 billion, 50% growth), and cloud databases,” said JMP securities analyst Patrick Walravens. He has a market perform rating on Oracle stock.
“A primary challenge is working as quickly as possible for the enterprise to increase cloud capacity to meet demand, especially for ai training workloads, which have different compute requirements (graphics processing units vs. processing), storage and networking, and cooling,” he added.
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