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Wednesday
June, 19

Oracle Falls as Conservative Guidance Falls Short of Lofty Expectations

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  • Oracle shares fell on Tuesday after the cloud company offered a weaker-than-expected Q2 outlook
  • That effectively scraped the first-quarter projections outlined by Tyler Corvin, the senior options trader at The Trading Analyst
  • On a more positive note, the company announced its clients bought more than $4 billion of AI training capacity

Oracle Corp (NYSE:) a slowdown in cloud sales growth for its first fiscal quarter, which has tempered enthusiasm regarding the company’s efforts to expand in cloud computing.

Moreover, the company’s guidance also fell short of high expectations, prompting the stock to drop 9% on Tuesday. The stock was up 55% year-to-date through Monday’s close.

Solid, But Not Great

Oracle said its revenue rose to $12.45 billion, up 8.8% year-over-year and in line with the analyst estimates. Revenue jumped 8% in constant currency, while analysts were looking for growth of 8.5%.

Segment-wise, the company’s cloud services and license support business saw its revenue jump 13% to $9.55 billion, a higher-than-expected YoY growth as analysts were looking for $9.43 billion.

The strong growth in this segment managed to offset a slowdown in the cloud license and on-premise license unit, which saw its sales plunge 11% YoY to $809 million. Analysts were looking for as much as $894.1 million, meaning that this slowdown wasn’t expected at all.

Oracle generated a further $1.38 billion and $714 million from services and hardware sales, respectively. Overall, the company generated $5.06 in adjusted operating income, up 13% YoY and above the market consensus. Finally, Oracle saw its adjusted operating margin expand 200 basis points YoY to 41%, topping the consensus that was looking for an expansion of 120 bps.

As far as the bottom line is concerned, the adjusted EPS of $1.19 was higher than the $1.03 reported for the year-ago period, and above the average analyst estimate of $1.15.

On the earnings call, Oracle guided to Q2 total revenue growth of 6%, missing the Street consensus. Organic Cloud revenue growth is expected at 28% on a constant currency basis (up or down 1%), which is below Oracle’s full-year outlook that calls for 29% growth. Adjusted EPS is seen in the range of $1.27-1.31 in constant currency, above the expected $1.25.

“Customer momentum is continuing to build. This momentum is turning into bookings, and that gives me the confidence that our annual revenue growth will continue to accelerate moving forward,” Catz said on the call.

Oracle is due to hold an “Oracle CloudWorld” event next week, where it might update its mid-term guidance. Oracle previously laid out financial targets for FY26 that call for $65 billion in revenue, 45% non-GAAP operating margin, and double-digit annual EPS growth.

“We remain firmly committed to our fiscal ’26 financial goals,” Catz added.

The event’s main purpose is to showcase the company’s latest innovations including AI, the progress of Oracle Autonomous Database, multi-cloud strategy, Oracle Analytics, etc.

The board of directors also declared a quarterly cash dividend of $0.40 per share, which will be paid to stockholders of record as of the close of business on October 12, and a payment date of October 26. The company said it repurchased 1.3 million shares for a total of $150 million in Q1, while also paying out dividends of 3.9 billion over the last 12 months.

All Eyes on Cloud

Oracle CEO Safra Catz noted that the company’s Cloud Infrastructure (OCI) revenue grew 66% in Q1, “much faster than our hyperscale cloud infrastructure competitors.” Total cloud services revenue soared 30% to $4.6 billion in the quarter. Oracle Cloud Services plus License Support revenue now accounts for 77% of Oracle’s total revenue, she added.

This is one of the main reasons why Oracle shares jumped strongly this year as Catz highlighted that this is a “highly-predictable, highly-profitable recurring revenue stream,” which boosts the company’s visibility. Catz added that Oracle has “far more demand than we can supply.” As a result, the company is working hard to build data centers “as quickly as possible.”

In Q1, remaining performance obligations (RPO), climbed to nearly 65 billion. Oracle said it signed several deals for OCI greater than a billion in total value. Catz added that Oracle booked an additional 1.5 billion in OCI deals in the first week of Q2.

“We have a great line of sight into the trajectory of the business given the bookings momentum. We are extremely confident about our revenue acceleration for the year even though, in any quarter, there may be small fluctuations,” the CEO added on the call.

Total cloud revenue for Q1 was +29%. The company’s strategy calls for cloud database services to be the third leg of revenue growth going forward, in addition to SaaS and OCI. Oracle has a 6% market share in the cloud market.

Another big takeaway from Q1 is that Chairman and CTO, Larry Ellison, noted that companies have signed contracts to purchase more than $4 billion of AI training capacity in Oracle’s Generation 2 Cloud.

“That’s twice as much AI training as we had booked at the end of the last Q4,” he commented.

He noted that Oracle’s platform trains AI models “at twice the speed and less than half the cost of other clouds” which is a key reason why the “leading AI startups continue to expand their business with Oracle,” Ellison said in his prepared remarks.

Guggenheim analysts see little risk that Oracle won’t achieve its Q2 goals. The stock is rated “Buy” with the Best Idea designation.

“Do these results change our thesis on ORCL? No. We continue to believe that the three legs of growth either still have much to go (SaaS), are at a very early stage (OCI), or are only just beginning (On Prem database migration to the Cloud),” analysts wrote in their post-earnings report on Oracle.

***

Shane Neagle is the EIC of The Tokenist. Check out The Tokenist’s free newsletter, Five Minute Finance, for weekly analysis of the biggest trends in finance and technology.



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