ii view: cloud database titan Oracle toppled

Second-quarter results to 30 November  

• Revenue up 9% to $14.1 billion
• Adjusted earnings up 10% to $1.47 per share
• Quarterly dividend unchanged at $0.40 per share

Chairman Larry Ellison said:

"Oracle cloud infrastructure trains several of the world's most important generative AI models because we are faster and less expensive than other clouds."

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ii round-up:

Database software and cloud data hosting provider Oracle Corp (NYSE:ORCL) detailed sales and earnings forecasts that missed high Wall Street expectations.

The Texas headquartered company expects growth in third-quarter sales of around 8% to $14.3 billion, taking earnings to $1.50 and $1.57 per share. Pushed by cloud datacentre related demand for AI software hosting, Wall Street was expecting revenues of $14.7 billion, driving earnings per share of $1.57.

Shares in the S&P 500 company fell 7% having come into this latest news up around 80% year-to-date. That’s ahead of a near 50% gain for fellow cloud data hosting provider Amazon.com Inc (NASDAQ:AMZN). The S&P 500 is up 27% in 2024. 

Oracle sells database software and hardware to datacentre providers and companies across the world, as well as having more than 160 of its own datacentres in operation or under construction.

Second-quarter cloud infrastructure related revenues climbed 52% year-over-year to $2.4 billion, pushing overall groupwide revenues up 9% to $14.1 billion. Adjusted earnings improved 10% to $1.47 per share. 

Oracle recently clinched a deal with Meta Platforms Inc Class A (NASDAQ:META), allowing the Facebook owner to use Oracle's AI cloud infrastructure and collaborate on the development of AI software models. 

A quarterly dividend of $0.40 per share stayed unchanged from the prior quarter. 

ii view:

Began in 1977, Oracle came to the stock market in 1986. Today it employs more than 155,000 people, aiding over 400,000 customers including companies such as Microsoft Corp (NASDAQ:MSFT), Google owner Alphabet Inc Class A (NASDAQ:GOOGL), Deutsche Bank and Uber. Pioneering the first Structured Query Language (SQL) database, Oracle has grown both organically and via more than 150 acquisitions costing around $110 billion. Geographically, the US accounted for 55% revenues during its last financial year, with the UK, Germany and Japan all notable at around 3-to-4%, and other countries making up the balance of just over a third. 

For investors, the tough economic outlook including high interest rates for its corporate customers cannot be forgotten. Costs generally for businesses remain heightened. A forecast dividend yield of around 0.8% is less than the 2.9% yield forecast for rival International Business Machines Corp (NYSE:IBM), while forecast price/earnings (PE) ratio above the 10-year average may suggest the shares are not particularly cheap. 

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To the upside, the broad corporate push toward using AI in conjunction with their databases is likely to offer continued demand support for Oracle services. A wide diversity of both customer types and geographical location exists. Growth by acquisition over time has been successfully achieved, while group investment in products and services leaves R&D spend at over $80 billion since 2012. 

On balance, and despite the ongoing difficulty in valuing perceived growth businesses, this giant of the database world is likely to attract investors keen to play the theme. 

Positives: 

• Product and customer sector diversity
• Own investment programme

Negatives:

• Acquisitions come with risk
• Currency moves can impact

The average rating of stock market analysts:

Buy