Oracle Stock Gains as Earnings Reaffirm its Relative Safe Haven Status


Shares of Oracle Corporation (NYSE:) are trading about 5% higher Tuesday after the cloud and software business reported better-than-expected results for its fiscal .

Investors see Oracle as a relatively safe haven status during an economic downturn. This is because a majority of Oracle’s revenue consists of recurring revenues, which makes the company’s financials more resilient during economic deceleration. Oracle’s earnings report reaffirms that trend.

The company is also looking to further streamline its operations, and it underwent a series of job cuts in 2022. The first round of cuts came after Oracle acquired Cerner (NASDAQ:), while the latest round of layoffs saw Oracle release 201 employees, mainly data scientists and developers, from its office in California.

Media reports surfaced in July suggesting that the company is seeking to reduce its workforce in a bid to cut costs by $1 billion following the Cerner takeover. Of course, the job cuts are not surprising as the broader IT sector witnessed significant job cuts in the past few months. While overall job growth in the sector remains healthy, recession fears have forced IT firms to slow hiring.

How Did Oracle Perform in FQ2?

Oracle reported Q2 adjusted earnings per share (EPS) of $1.21, topping the consensus estimates of $1.18 per share, according to Refinitiv. Revenue came in at $12.28 billion, up 18% year-over-year, beating the analyst consensus of $12.05 billion, $1.5 billion of which came from Cerner, a healthcare software company Oracle bought in June for $28 billion.

Oracle’s revenue was more than $200 million above the high end of the company’s forecast range, driven by strong performance in cloud infrastructure and cloud-based apps. Net income stood at $1.74 billion in the three-month period, up from a $1.25 billion net loss in the same period last year.

Oracle’s cloud services and license support business contributed $8.6 billion in revenue, up 14% year-over-year and slightly above the consensus projection of $8.56 billion. The software company said its revenue from cloud infrastructure surged by 53% to $1 billion. Meanwhile, revenue from cloud and on-premises licenses stood at $1.44 billion in the quarter, while analysts were expecting $1.24 billion.

Oracle also noted a 9 cents per share negative impact stemming from foreign exchange rates. The Santa Clara, California-based company also said its adjusted operating margin increased to 41% from 39% in the previous quarter.

“We really have it coming from all areas,” Oracle CEO Safra Catz said during Monday’s earnings call.

“We are already having some level of savings, but ultimately, just so that you understand, our expectation is we will run them at typical Oracle margins,” she added.

Catz believes that her company will see “continued improvement” over the following several quarters “as we’ve done some of our operational integration and simultaneously I think they continue to over-perform for us.”

Moving forward, Oracle expects Q3 adjusted earnings per share in the range of $1.17 to $1.21 per share, compared to consensus estimates of $1.24 per share. Further, the company estimates Q3 revenue growth in the range of 17% to 19%, while analysts were looking for 17.3%.

New Government Contract

From the healthcare industry to the U.S. Department of Defense (DoD), cloud computing remains on the rise. Just a few days after Oracle’s strong earnings report, the firm was joined by the likes of Google (NASDAQ:), Microsoft (NASDAQ:), and Amazon (NASDAQ:) in being awarded a cloud-computing contract worth up to $9 billion through 2028.

The contract represents a part of the Joint Warfighting Cloud Capability (JWCC) – a US Defense Department’s (DoD) initiative that allows it to leverage cloud-based solutions to meet current and future mission initiatives. It is “a multiple award procurement composed of four contracts with a shared ceiling of $9 Billion,” DoD said.

The JWCC effort is in line with DoD’s goal to rely on multiple cloud solutions providers instead of being dependent on a single company. A rapidly increasing number of businesses are also striving to rely on multiple cloud providers as this improves confidence among organizations that they can better weather service disruptions during outages.

Previously, the Pentagon had awarded the Joint Enterprise Defense Infrastructure (JEDI) only to Microsoft in 2019. However, Amazon and Oracle took legal steps to challenge the decision, a move that bore fruit in 2021 after the DoD amended its approach and asked Microsoft, Amazon, Oracle, and Google for bids to tackle cloud needs. At the time, only Amazon and Microsoft were able to address the requirements, according to the General Services Administration.

For that reason, analysts believe the latest JWCC awards represent an important step forward for Oracle, which usually is not seen in the top tier of cloud-based service providers. The company bagged $900 million in cloud infrastructure revenue in the second quarter, compared to the $20.5 billion that Amazon Web Services generated in Q3.

The Defense Department said:

“The purpose of this contract is to provide the Department of Defense with enterprise-wide globally available cloud services across all security domains and classification levels, from the strategic level to the tactical edge.”

Summary

Oracle stock is trading in the green on Tuesday following another solid report from the cloud-focused tech company. The better-than-feared earnings come after Oracle won a contract from the U.S. government, which could help reduce its gap to Amazon, Microsoft, and Google – tech giants seen as cloud market leaders.



Source link

Comments are closed, but trackbacks and pingbacks are open.