Oracle Shares Decline on Mixed Results

Company beats on earnings but disappoints on revenue

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Mar 21, 2018
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Oracle Corp. (ORCL, Financial) released third-quarter fiscal 2018 financial results on Monday after the bell. Though the California-based company earned $3.5 billion in net income for the quarter, it failed to impress its investors, sending its shares down almost 4% immediately after the release. Here’s a closer look at the quarter performance of the technology giant.

Stock fall

Oracle’s stock took a dip right after the announcement of the third quarter results. One of the key factors include the company’s disappointing revenue guidance for the fourth quarter. Additionally, the company’s mixed results did not seem to impress investors.

Oracle’s shares further dipped nearly 10% in pre-market trading on Tuesday. Though the earnings came in far above expectation, revenue was flat and slightly shy of analysts’ estimation. Oracle’s results missed on one of the specific growth areas like cloud. Though revenue generated from cloud grew 25% on a non-GAAP basis (moderately above Wall Street expectation of 24%), on constant currency basis, growth was only 22%. As such, there was general investor concern regarding the slowdown in cloud growth.

Besides, the company missed on software license revenue. Software license revenue dipped 6% on constant currency basis compared with analyst expectation of 2% decline.

By the numbers

Oracle registered revenue of $9.77 billion for the third quarter, which was mildly below analysts' consensus of $9.78 billion. Oracle's overall revenue went up 6% from $9.21 billion recorded a year earlier. The company reported adjusted earnings per share of $0.83, way ahead of analyst estimate of $0.72.

During the quarter, the company had to take a one-time tax reform charge of $6.9 billion, with a 16.1% tax rate, excluding certain items. That compares with 21.6% a year earlier. On-premises revenue, accounting for around 66% of Oracle’s top line for the quarter, grew 4% to $6.42 billion. Software license revenue was $1.39 billion, down 2%. This accounted for 14% of the company’s total revenue during the quarter.

Oracle has been working to lower its reliance on software sales for corporate data centers and has been increasing focus on delivering cloud-based services to customers. This was evident in the third quarter when cloud software revenue rose 33% to $1.15 billion. Cloud platform as a service and cloud infrastructure as a service revenue stood at $415 million, showing a growth of 28%.

What to expect

At the earning call, CEO Safra Catz gave guidance on the fourth quarter, expecting Oracle to record $0.92 to $0.95 earnings per share, excluding certain items. Revenue is projected to witness growth of 1% to 3%, which means the top line should range in between $11 billion to $11.1 billion. According to Thomson Reuters, analysts had expected $0.90 in earnings per share on revenue of $11.22 billion in the final quarter, which came as a disappointment.

Disclosure: I do not hold any position in the stock mentioned in this article.