ii view: muted reaction to Oracle Q1 results beat

First-quarter results to 31 August  

• Revenue up 30% to $19.35 billion (£14.31 billion)
• Adjusted earnings up 30% to $1.92 per share

ii round-up:

Oracle Corp (NYSE:ORCL) detailed sales and earnings that beat Wall Street hopes, driven by a more than doubling in cloud infrastructure revenues year-over-year.

First-quarter sales growth at its cloud platform that aids customers with a wide range of computing tasks accelerated to 121%. That’s up from growth of 93% in Q4 and 84% in Q3. Total group-wide sales of $19.35 billion drove earnings up 30% to $1.92 per share, exceeding analyst forecasts of $19.14 billion and $1.74 per share respectively.

Despite that, shares in the S&P 500 company gave up a chunk of their early gain, having about halved over the last year. Fellow data centre provider Microsoft Corp (NASDAQ:MSFT) has fallen by about 2% during that time. The S&P 500 index has gained by almost 17% over the last year.  

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As well as being a major database software provider, Oracle has been investing heavily in expanding its own network of datacentres from which other companies can host their AI software.

Remaining Performance Obligations (RPO), a measure of contracted revenues that have not yet been recognised, rose $26 billion from the previous quarter, or $229 from a year ago to $664 billion.

A quarterly dividend of $0.50 per share, and payable to eligible shareholders on 23 October, is unchanged from the previous fourth quarter.

Oracle now expects full-year revenue of $90 billion or more, pushing adjusted earnings of $8.10 per share. That’s up from a previous $90 billion, with Wall Street previously forecasting an outcome of $8.07 per share.

ii view:

Started in 1977, Oracle pioneered the first Structured Query Language (SQL) database. Oracle’s more than 400,000 customers include FedEx, Bank of America, McDonald’s and AT&T. Data hosting, or Cloud revenue came in at 60% during this latest quarter, up from 52% in Q4. Software sales totalled 29%, down from 35% in Q4, with the balance of 11% split between services and hardware sales.

For investors, expected annual gross capital expenditure of up to $95 billion continues to require justification from returns and growing profits in the future. High competition includes players such as Amazon and Google owner Alphabet. Negative free cashflow caused by heavy spending rose to $5.39 billion this latest quarter from $362 million a year ago, while a forecast dividend yield of around 1.3% compares to an expected yield nearer to 3% for rival International Business Machines Corp (NYSE:IBM).

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To the upside, soaring RPO of $664 billion now underpins future revenues, with Oracle’s renowned database a major attraction for customers in hosting their AI software at Oracle facilities. A partnership with the US government is now underway following previously announced plans by President Trump to invest billions of dollars in US AI infrastructure, while growth by acquisition over time has been achieved.

On balance, and while risks remain, Oracle’s ambition to be one of the world’s largest cloud infrastructure, or hosting companies continues to be supported by its much-used database software, providing grounds for continued longer-term optimism.    

Positives:

• Product and customer sector diversity
• Successful acquisition track record

Negatives:

• Society concerns for AI use
• Currency moves can impact

The average rating of stock market analysts:

Buy