Oracle Falls After Reporting Slower Growth in Cloud Sales

(Bloomberg) — Oracle Corp. reported cloud sales growth that slowed in the quarter, dimming enthusiasm about the software maker’s expansion efforts in the competitive market. The shares declined as much as 10% in premarket trading.

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Cloud revenue, a metric that is closely watched by investors, jumped 30% to $4.6 billion in the period ended Aug. 31. Of that, $1.5 billion came from renting computing power and storage over the internet and $3.1 billion from applications. That cloud growth rate was slower than the 54% jump in the previous quarter.

The Austin, Texas-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. Investors have been increasingly hopeful that a surge in demand for artificial intelligence products, which need significant computing power, will help Oracle gain share in the market.

For Oracle right now, “it’s all about the cloud, it’s all about scaling that business,” said Angelo Zino, an analyst at CFRA.

The stock dropped to a low of $113.80 in early trading after closing at a record high in New York. If the decline holds, Oracle faces its biggest intraday fall since March 2020. Results “look to have missed more elevated expectations with revenue,” wrote Citigroup Inc. analyst Tyler Radke. The shares have rallied 55% this year.

Oracle Chairman Larry Ellison expressed enthusiasm for the growing demand spurred by AI, saying companies in the area have “signed contracts to purchase more than $4 billion of capacity” from Oracle’s cloud service. The figure is twice as much as Oracle booked at the end of the previous quarter, he said Monday in a statement with the results.

Revenue from the cloud infrastructure business increased 66% in the fiscal first quarter — “much faster than our hyperscale cloud infrastructure competitors,” Chief Executive Officer Safra Catz said in the statement. That figure was 76% in the previous three-month period.

The company’s biggest current challenge is building data centers as quickly as possible to meet demand, Catz said on a conference call after the results. Powerful chips required to run technically demanding artificial intelligence workflows have been in short supply amid the boom in interest around the emerging technology.

In the fiscal first quarter, total revenue increased 9% to $12.5 billion, the company said, which was in line with analysts’ average estimate. Profit, excluding some items, was $1.19 a share, compared with the average estimate of $1.15, according to data compiled by Bloomberg.

Sales of Fusion software for managing corporate finance increased 21% in the quarter, compared with 26% growth in the previous period. Revenue from NetSuite, enterprise planning tools aimed at small- and mid-sized companies, jumped 21%, compared with 22% in the fiscal fourth quarter.

Total revenue in the current period ending in November will increase 5% to 7%, Catz said on the call. Analysts, on average, projected an 8% gain to $13.3 billion. Cloud sales, excluding the Cerner health unit, will jump as much as 31%, she said.

Sales generated by the Cerner health unit will experience “near term headwinds” as Oracle moves customers to the cloud, Catz said. They are working to drive profitability to “Oracle standards,” she added. Earlier this year, the company cut jobs in the division, which was acquired in June 2022.

(Updates with premarket shares starting in first paragraph.)

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