Oracle comes up short on revenue but touts AI cloud contracts

Oracle shares moved 9% lower in extended trading on Monday after the database software maker disclosed revenue and revenue guidance that were lighter than expected.

Here’s how the company did:

• Earnings: $1.19 per share, adjusted, vs. $1.15 per share as expected by analysts, according to LSEG.
• Revenue: $12.45 billion vs. $12.47 billion as expected by analysts, according to LSEG.

With respect to guidance, Oracle called for adjusted net income of $1.30 to $1.34 per share and 5% to 7% revenue growth in the fiscal second quarter. Analysts polled by LSEG had predicted $1.33 in adjusted earnings per share and $13.28 billion in revenue, which implies 8% revenue growth.

Oracle’s revenue grew 9% year over year in the fiscal first quarter that ended Aug. 31, according to a statement. Net income rose to $2.42 billion, or 86 cents per share, compared with $1.55 billion, or 56 cents per share, in the year-ago quarter.

In June 2022, Oracle closed its $28.2 billion acquisition of Cerner, the electronic health record software company, and now Oracle is in “accelerated transition” of Cerner to the cloud, slowing down its revenue growth, Safra Catz, Oracle’s CEO, said on a conference call with analysts.

“This transition is resulting in some near-term headwinds to the Cerner growth rate as customers move from licensed purchases, which are recognized upfront, to cloud subscriptions which are recognized ratably,” she said.

Oracle’s cloud services and license support segment produced $9.55 billion in revenue, up 13% year over year and above the StreetAccount consensus of $9.44 billion. But the cloud license and on-premises license segment posted $809 million in revenue, which was off 10% and lower than the $892.7 million StreetAccount consensus.

Hardware revenue, at $714 million, declined 6% year over year. Analysts polled by StreetAccount were looking for $739.6 million.

Revenue from cloud infrastructure, totaling $1.5 billion, increased 66%, slowing from 76% in the prior quarter. Oracle remains smaller than Amazon, Google and Microsoft in the category.

“As of today, AI development companies have signed contracts to purchase more than $4 billion of capacity in Oracle’s Gen2 Cloud. That’s twice as much as we had booked at the end of Q4,” Larry Ellison, company chair and technology chief, was quoted as saying in the statement.

During the quarter, Oracle announced new database hardware, Micros point-of-sale workstations and artificial intelligence features in its Fusion Cloud Human Capital Management software. Ellison said during the conference call with analysts that xAI, Tesla CEO Elon Musk’s recently announced AI startup, would use Oracle’s cloud services. Ellison invested in Tesla shares and held a board seat at the electric automaker until August 2022.

Excluding Monday’s after-hours move, Oracle shares are up 55% so far this year, while the S&P 500 has risen about 17% over the same period.

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