Oracle (NYSE: $ORCL) shares slid on Tuesday after the company’s fiscal second quarter revenue and sales guidance fell short of Wall Street expectations.
Yahoo Finance Reporter Madison Mills breaks down Oracle’s slowing growth in its cloud division amid competition with Microsoft, Amazon and Google.
Seana Smith: We’re about seven minutes away from the opening bell, and we’re closely monitoring Oracle’s shares ahead of the market opening. The stock is showing losses of around 10%, driven by disappointing revenue and lower-than-expected guidance.
Madison Mills is here to provide insight into this situation. Mady, the market seems to be reacting strongly ahead of the opening.
Madison Mills: Yes, Oracle missed expectations in the last quarter and again this quarter, resulting in a double negative impact. Angelo Zino from CFRA highlighted that the disappointing figures mainly stem from the cloud-infrastructure business, which grew by 52%, falling short of the Street’s expectation of 55%. This consecutive quarterly miss is causing disappointment among investors.
Despite these setbacks, Oracle is viewed as a potential growth story, explaining why we’re witnessing more of a hold than an outright sell on the stock. Currently, 40% of analysts recommend holding the stock, with 50% giving it a buy rating. The hesitation is partly due to significant capital expenditures going into the cloud-infrastructure business and data centers, affecting the top-line numbers in the recent earnings report.
Angelo mentioned that the market is expressing a desire to fast-forward three years from now when the Legacy business’s impact on Oracle is diminished, allowing the company to become a more significant growth player in the broader cloud space. However, patience is scarce, especially in the current cloud environment.
Brad Smith: Indeed, looking at the relationship between bookings, CapEx, and their expectations for this fiscal year, where CapEx is projected to be around $8 billion, with a focus on building capacity for bookings and existing customers. How do these results compare to other major players in the cloud space?
Madison Mills: Oracle holds only a 2% share of the overall cloud market, a modest figure when compared to industry giants like Microsoft and Amazon. The year-to-date performance charts for these companies show Amazon and Microsoft outpacing Oracle.
However, there’s a belief that if Oracle can reduce its CapEx, enhance its AI capabilities (which they have hinted at), and expand its cloud-infrastructure business, it can compete more effectively on the same stage as the industry leaders. The demand for cloud services remains strong, leaving room for multiple players in the space.
Brad Smith: Absolutely. Considering the diverse services Oracle offers to its portfolio client base, is it anticipated that AI will have a similar impact for them as it does for companies like Microsoft and Salesforce?
Madison Mills: Yes, AI is a focal point that companies often highlight to boost investor confidence, especially in the face of other negative news. Angelo emphasized that the AI story can contribute to a broader revenue mix for Oracle, which is what the market is looking for, particularly amid uncertainty about the macroeconomic landscape. Broadening the revenue growth and incorporating AI could be a positive indicator for Oracle moving forward.
Brad Smith: So, dropping more AI mentions could have been the key to hitting those word counts in college?
Madison Mills: Always.
Brad Smith: I guess I should have taken that approach.
About Oracle Corporation
Oracle Corporation offers a range of products and services designed to meet the needs of enterprise information technology (IT) environments. The company operates in three primary segments: cloud and license, hardware, and services.
Oracle’s global delivery of enterprise applications and infrastructure solutions is facilitated through various flexible and interoperable IT deployment models. In the cloud and license business, the company markets, sells, and delivers a wide array of enterprise applications and infrastructure technologies.
The hardware segment provides diverse enterprise hardware products and associated software, such as Oracle Engineered Systems, servers, storage, industry-specific hardware solutions, operating systems, virtualization, management software, and hardware support.
Additionally, Oracle’s services business offers consulting services and advanced customer support. The company serves a global customer base, reaching clients around the world.
How much dividend Oracle pays?
Oracle Corporation (ORCL) offers a dividend yield of 1.39%, signifying that for every $100 invested in the company’s stock, investors can expect to receive $1.39 in annual dividends. The payout ratio for Oracle Corporation stands at 41.59%, indicating that 41.59% of the company’s earnings are distributed to shareholders as dividends.
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