Oracle misses earnings expectations as equity investments hurt revenue

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Oracle Corp. today reported third-quarter revenue in line with expectations and earnings that beat expectations due to what it said were the decline in the value of two equity investments, but its earnings forecast and revenue for the next three months remained above analysts’ forecasts.

The report initially caused Oracle shares to fall more than 6% in after-hours trading, only to recover once the guidance was released.

The database company reported earnings before certain costs such as stock-based compensation of $1.13 per share on revenue of $10.51 billion, up 4% from a year ago. Analysts had expected a larger profit of $1.18 per share on the same income.

Oracle’s net profit for the period fell 54% to $2.32 billion. The company blamed that on falling stock values ​​of gene sequencing company Oxford Nanopore Technologies Plc., and an operating loss at private server chipmaker Arm Ampere Computing LLC. Even so, Oracle said, “we remain confident that our investments in these two cutting-edge technology companies will provide very strong returns for Oracle.”

Oracle Chief Executive Safra Catz (pictured) pointed to constant currency revenue growth of 7% in the quarter as the company’s highest organic quarterly revenue growth rate since the start of its transition to the cloud.

“This strong revenue growth was accompanied by strong non-GAAP constant currency operating income growth of 4%, but the important fact is that our overall revenue growth is driven by both our rapidly growing cloud infrastructure and cloud applications businesses,” Catz said in a statement.

Oracle said its cloud computing software revenue, which includes its infrastructure-as-a-service and software-as-a-service businesses, jumped 24% in the quarter to $2.8 billion.

“Third quarter cloud infrastructure revenue grew 47% in constant currency,” Catz continued in its statement. “Cloud application growth in the third quarter was driven by Fusion ERP, which grew 35% in constant currency, and NetSuite ERP, which grew 29% in constant currency. Total cloud revenue, which includes cloud infrastructure and cloud applications, now exceeds $11 billion per year.

Oracle also highlighted rapid customer wins in its Fusion ERP and NetSuite ERP software offerings, which grew 33% and 27%, respectively.

In a conference call with analysts, Catz said Oracle was still struggling with supply chain issues. Despite its move to the cloud, the company still sells a lot of hardware to enterprise customers who want to deploy its database services in on-premises data centers.

“We couldn’t meet all the needs as quickly as we would have liked,” Catz told analysts on the call.

During the quarter, Oracle completed development work on the multicloud version of its open source MySQL HeatWave database. Oracle President and CTO Larry Ellison said this offering is designed to compete with Amazon Web Services Inc.’s MySQL database, Aurora, as well as Snowflake and other popular cloud databases. . It promised it would perform seven times faster than these competing offerings at about two to five times the cost.

“In a few weeks, MySQL HeatWave will also be available in the Amazon cloud and the Microsoft Azure cloud,” Ellison said. “What customers and database analysts are saying about Oracle’s new MySQL HeatWave database is nothing short of amazing.”

Holger Mueller of Constellation Research Inc. said that with the new MySQL HeatWave database offering, Oracle appears to be trying to prepare for a strong fourth quarter. That’s important, he said, because the fourth quarter is traditionally the biggest in Oracle’s fiscal year.

“With Oracle MySQL HeatWave, the company is pushing an additional database offering for the first time, and it’s clear that Catz and Ellison have high expectations for it, especially when it comes to its cloud competition,” said Mueller.

The analyst also drew attention to Oracle’s capital expenditures, which totaled nearly $4 billion in the quarter, saying it’s further evidence of its desire to end the fiscal year strong. .

“This is a new record for Oracle and shows the commitment to continue building Oracle Cloud Infrastructure,” he said. “It’s remarkable because let’s not forget that Oracle is the only remaining 30-year-old vendor to successfully build its own infrastructure-as-a-service platform – all the others have failed.”

In addition to MySQL HeatWave, Oracle customers will soon have new capabilities to look forward to as well following its $28.3 billion acquisition of electronic medical records company Cerner Corp. This acquisition is expected to close in the current quarter, after which Oracle said so. will integrate its voice-enabled digital assistant tools with Cerner’s software to help healthcare professionals access patient data faster and easier.

At the time, Ellison said the idea was to provide a new generation of easier-to-use digital tools for healthcare professionals, allowing them to access the information they need through a hands-free voice interface. . Oracle said there is a great opportunity to help healthcare organizations operate more efficiently and thereby improve patient care.

Pund-IT Inc. analyst Charles King told SiliconANGLE he thinks Oracle is in a somewhat tricky position as it diversifies from its well-known database markets into other areas that its investors may not fully understand or be comfortable with. He said some investors were probably more worried than they should be about his investments in Ampere and Oxford Nanopore, which suffered only relatively minor financial setbacks.

“In a sense, it could be described as a problem of shareholders who can’t see the forest for the trees,” King said. “But at the same time, it is the responsibility of a company’s management to help analysts and investors make sense of new initiatives and strategies. At this point, it looks like Oracle executives have some work to do in this regard.

For its fourth fiscal quarter, Oracle is forecasting earnings of $1.35 to $1.39 per share, with revenue of $11.9 billion to $12.13 billion. Analysts had previously forecast earnings of $1.38 per share on $11.76 billion in revenue. Catz said the guidance assumes no contribution from Cerner, although the deal is likely to close before the end of the quarter.

Photo: Oracle/Flickr

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