Oracle slumps as tepid revenue forecast underscores cloud-spending pullback

Oracle was upbeat in its investor conference call but again disappointed markets with a muted near-term revenue forecast.

Dec 12, 2023 - 19:30

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Oracle slumps as tepid revenue forecast underscores cloud-spending pullback

Updated at 7:16 AM EST

Oracle (ORCL) - Get Free Report shares moved sharply lower Tuesday after the cloud-focused enterprise-software group issued another tepid near-term sales forecast, citing increased competition and a pullback in enterprise spending offset a mixed third quarter earnings report.

Oracle said adjusted earnings for the three months ended in October rose 11% from the year-earlier period to $1.34 a share, topping Wall Street forecasts by 2 cents. Group revenues rose 5.4% to $12.94 billion, just shy of analysts' estimates, as overall growth in cloud revenue slowed from last quarter to around 25%.

Looking into 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 end-of-year goals for a 45% operating margin and 10% annual profit growth.

Oracle: Cloud-infrastructure demand 'broad'

"The demand for cloud infrastructure services and new Oracle cloud data centers is broad-based," Chairman Larry Ellison told investors on a conference call late Monday. "It's driven not only by generative-AI customers but also by nation-states buying sovereign Oracle cloud data centers, plus large banks, telecommunications companies, and industrial companies buying dedicated Oracle cloud data centers.

"And perhaps most interestingly, demand from other hyperscalers and other cloud-service providers co-locating and connecting their clouds with Oracle cloud data centers," he added. "In the next few months, we will turn on 20 new Oracle cloud data centers colocated with and connected to Microsoft Azure as a part of our joint multicloud initiative."

Oracle shares were marked 8.6% lower in premarket trading to indicate an opening-bell price of $105.08 each. The move would trim the stock's 2023 gain to around 30%.

"On the positive side, Oracle has three nice growth drivers in its [software as a service] business ($3.2 billion, growing 14%), Gen2 infrastructure services ($1.6 billion, growing 50%), and cloud database services," said JMP Securities analyst Patrick Walravens. He carries a market perform rating on Oracle stock.

"A primary challenge is working as quickly as the company can to get cloud capacity built up to meet demand, especially for AI-training workloads, which have different requirements for compute (graphics-processing units versus central-processing units), storage, networking, and cooling," he added.