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Oracle Stock Surges On Strong Results Despite Tough Macro Environment

Published 06/14/2022, 02:09 PM
Updated 04/07/2022, 04:55 AM

Shares of Oracle (NYSE:ORCL) are up nearly 9% today after the computer technology company reported better-than-expected Q4 2022 financial results.

Strong Revenue Growth

Oracle reported adjusted earnings per share (EPS) of $1.54, topping the consensus estimates of $1.37 per share, according to Refinitiv. Revenue came in at $11.84 billion, up 5% year-over-year and above the analysts’ estimates of $11.66 billion. Strong quarterly revenue was fueled by growth in Oracle’s cloud infrastructure unit.

The company’s cloud infrastructure business saw its sales surge by 36% in the quarter, with total cloud revenue rising 19% to $2.9 billion. Oracle failed to compete with major cloud infrastructure providers as of the end of 2021. However, the database software maker has lured both old and new clients to its cloud solutions in the first quarter, resulting in a strong sales increase.

The company’s Chief Executive Safra Catz noted a robust increase in demand for cloud infrastructure, saying that “this revenue growth spike indicates that our infrastructure business has now entered a hyper-growth phase”.

Oracle reported a currency headwind of 5% in its latest fiscal quarter, up from 2-3% in Q3 2021, as the greenback headed towards a 20-year high against a basket of currencies. The headwinds are likely to persist in the current quarter.

The Santa Clara, California-based company also expects a $100 million hit per quarter in fiscal 2023 after its exit from Russia following its invasion of Ukraine in February.

Heading into the earnings, the options market expected a move of 9.5% in Oracle shares.

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Cerner Deal Closed

After announcing the deal last year, Oracle finally closed its $28 billion takeover of Cerner last week. The acquisition was one of the top enterprise deals of 2021, and the move was praised by analysts, including Constellation Research’s Holger Mueller.

Mueller said the deal would bring the profitable market to Oracle’s cloud products, which is why Oracle was prepared to pay $28 billion for the electronic health records company.

Mueller said after the announcement:

“It’s a smart move by Oracle. It cements Oracle technology even deeper into healthcare and brings a lot of current and especially future workload to Oracle Cloud. Not to mention that Oracle is buying into the largest and fastest-growing vertical industry,”

While the deal could significantly reinforce Oracle’s position in healthcare, it will all come down to how well the database software company and Cerner fit in the end and whether Oracle will manage to fulfill the potential Cerner offers.

Just like Oracle, Microsoft (NASDAQ:MSFT) paid nearly $20 billion to acquire Nuance Communications in April last year, hoping to benefit from the company’s innovative conversational AI solutions.

JMP Securities analyst Patrick Walravens noted “really interesting things” within Oracle’s business, such as the strong growth in the company’s cloud unit and its buyout of Cerner.

Walravens, who has a Market Perform rating on Oracle stock, says the company will attempt to improve Cerner by bringing it to its “cloud infrastructure and other platform technology.”

Still, the analyst noted that it will be very important to keep an eye on the integration of the deal, which is the largest one in Oracle’s history, due to the volatile macroeconomic environment.

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Investor Attention Is Increasing

Despite FX and macro headwinds, Oracle expects to continue seeing solid revenue growth in its cloud unit in the face of record-high inflation and a stronger US dollar. Oracle’s rivals Microsoft and Salesforce (NYSE:CRM) also forecasted substantial upside for the cloud market as companies and organizations continue to increase spending on cloud solutions.

For this quarter, Oracle expects the revenue growth to be in the range of 17% to 18%, driven by its recent buyout of healthcare IT company Cerner Corp (NASDAQ:CERN). The software maker expects Q1 adjusted EPS to be in the range of $1.04 to $1.08, while analysts were looking for $1.13 per share.

Oracle’s strong financial report for the fourth quarter was welcomed by many investors who are increasingly focused on companies that are able to generate cash and profit during the current bear market.

The company’s guidance came on the same day when the benchmark S&P 500 index saw yet another decline due to investors’ concerns that a new interest rate hike later this week could tip the economy into a recession.
Conclusion

Oracle shares are trading sharply higher today after the company delivered better-than-feared Q1 results despite the difficult macro environment. The tech company delivered strong revenue growth, with revenues from the cloud infrastructure business surging by 36% in the quarter.

Oracle stock is also likely to benefit from the company’s better relative positioning as the wider tech sector continues to get battered by the rising rates and an extremely aggressive monetary policy from the Federal Reserve.

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