Oracle Shares Fall on Darker Cloud Forecast -- WSJ

By FeaturesDow Jones Newswires

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (December 15, 2017).

Oracle Corp.'s stock sank after hours following news that the growth of its cloud-computing business in the current quarter would fall below expectations.

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Fiscal third-quarter cloud revenue would grow 21% to 25%, not accounting for currency fluctuations, the company said after reporting earnings Thursday. Analysts had expected growth would be closer to 30%.

It is the second consecutive quarter Oracle gave a lower-than-expected guidance for its cloud business. Three months ago, the company said cloud sales would rise 39% to 43%. It actually surpassed those diminished expectations, growing 44% in the quarter to $1.52 billion.

Shares of the Redwood City, Calif., business-software maker closed up a hair at $50.19 in regular trading. They initially dropped 3.9% later when the results were released. When investors heard the latest guidance, the share decline grew to nearly 7%.

Separately, Oracle's board also authorized a share buyback program of $12 billion.

The 40-year-old company became the leading vendor of database technology by selling licenses to software corporate customers run in their own data centers. As business computing shifts to subscriptions of online software, Oracle has pivoted. Despite recently lowering its expectations, the company's cloud revenue has grown rapidly.

Oracle's cloud software-as-a-service business, in which it sells access to web-based applications, grew 55% to $1.1 billion in the second quarter.

Its cloud platform-as-a-service business, in which it sells access to app-management and data-analytics tools, combined with its infrastructure-as-a-service business, where it provides computing resources and storage on demand, climbed 21% to $396 million.

That's the business in which it competes against Amazon.com Inc.'s Amazon Web Services and Microsoft Corp.'s Azure service. Both companies have significantly larger cloud-infrastructure operations and are growing those businesses at a faster pace than Oracle.

Because Oracle came to the cloud later than those rivals, it has focused on a market niche: existing customers shifting away from their own data centers, said Stifel Nicolaus & Co. analyst Brad Reback.

"That business is unlikely to have a growth rate like AWS or Azure," Mr. Reback said.

Growth in Oracle's overall cloud business continues to outpace declines in its legacy software business. The cloud business grew $466 million year-over-year while Oracle's new software-license revenue grew $6 million.

"Bottom line, our transition to the cloud is going well," Oracle co-Chief Executive Safra Catz said during a conference call with analysts.

Overall, revenue from new software licenses grew 0.5% to $1.35 billion.

Even as Oracle shifts to the cloud, the majority of its sales come from software-license updates and product support. That segment generated $4.95 billion in revenue, a 3.7% jump from a year earlier.

Overall, net income rose 9.9% to $2.23 billion, or 52 cents a share. The company said adjusted per-share earnings, which exclude stock-based compensation and other items, were 70 cents.

Revenue rose 6.5% to $9.62 billion, while adjusted revenue climbed 6.2% to $9.07 billion.

According to estimates gathered by S&P Global Market Intelligence, analysts expected Oracle to earn 68 cents a share on an adjusted basis, on adjusted revenue of $9.57 billion.

Write to Jay Greene at Jay.Greene@wsj.com

(END) Dow Jones Newswires

December 15, 2017 02:47 ET (07:47 GMT)