Oracle Reports Disappointing Sales on Slowing Cloud Momentum

(Bloomberg) — Oracle Corp. reported slowing quarterly sales growth in its cloud computing business, fueling investor fears that the software maker’s expansion efforts have yet to gain ground in the competitive market. The shares fell about 8% in extended trading.

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Cloud revenue rose 25% to $4.8 billion in the period ended Nov. 30, after a 30% gain in the previous quarter. It was the second consecutive quarter of slowing growth.

The Austin-based company, known for its database software, is focused on expanding its cloud infrastructure business to more forcefully compete with Inc., Microsoft Corp. and Alphabet Inc.’s Google. That initiative hit a snag last quarter when Oracle reported its first infrastructure growth slowdown after more than a year of acceleration.

Investors are waiting to see an improvement, said Bloomberg Intelligence’s Anurag Rana in an interview on Bloomberg TV. “Their infrastructure growth came in below what analysts were expecting,” he said. That growth rate was 52% in the quarter, down from 66% the previous period.

Still, Oracle executives remain bullish on the business. Chief Executive Officer Safra Catz said in a statement that demand “is increasing at an astronomical rate.”

Chairman Larry Ellison said Oracle continues to spend to expand its cloud infrastructure, including building 100 new cloud data centers. “Demand is over the moon,” he said in the statement.

Future gains will hinge not just on customer demand, but the availability of graphics processors used in data centers to power artificial intelligence workloads, wrote Siti Panigrahi, an analyst at Mizuho, ahead of the results.

The shares dropped to a low of $103.82 in extended trading after closing at $115.13 in New York. The stock has gained 41% this year, lagging behind the iShares Expanded Tech-Software Sector ETF rally of 55%.

Fiscal second-quarter sales increased 5% to $12.9 billion, the company said Monday in a statement. Analysts, on average, estimated $13.1 billion, according to data compiled by Bloomberg. Profit, excluding some items, was $1.34 a share, compared with the average estimate of $1.33.

Of the cloud revenue, $1.6 billion came from renting out computing power and storage over the internet and $3.2 billion from applications.

Sales of Fusion software for managing corporate finance increased 21% in the quarter. Revenue from NetSuite, enterprise planning tools aimed at small- and mid-sized companies, also jumped 21%. Sales at both businesses gained 21% in the previous period.

Another point of concern is that acquired health records business Cerner is growing slower than Wall Street expected. Management said in September that the company is working to shift Cerner’s legacy software business to the cloud, which means it has to change the structure of contracts with many customers. Earlier this year, Oracle cut jobs in the division, which was acquired for about $29 billion in June 2022.

(Updates with executive comments beginning in the fifth paragraph.)

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