Oracle (ORCL) Falls Over 5% on Disappointing Revenue Guidance, Analysts Mostly Disappointed

Although Oracle (NASDAQ: ORCL) reported better-than-expected earnings and revenue for its fiscal third quarter, shares fell 5.5% on a disappointing pace of revenue growth.

Earnings per share came in at $1.16 per share to beat the Street consensus of $1.11 per share. The surveyed analysts were expecting the company to report $10.07 billion in revenue while the software firm said it recorded revenues of $10.09 billion.

ORCL increased its quarterly dividend to $0.32 per share from $0.24 per share.

"Oracle's rapidly growing highly-profitable, multi-billion dollar cloud ERP businesses helped drive subscription revenue up 5% and operating income up 10% in the quarter. Subscription revenue now accounts for 72% of Oracle's total revenues, and this highly-predictable recurring revenue-stream along with expense discipline are enabling double-digit increases in non-GAAP earnings per share,” said Oracle CEO, Safra Catz.

On the guidance front, the company expects to see its Q4 revenues growing 5% to 7% and EPS of $1.28 to $1.32. On a constant currency basis, ORCL is looking to see its sales growing 1%-3%.

“I think investors may be disappointed by guidance of 1%-3% sales growth in constant currency next quarter, which is a slight improvement to the current quarter, but not substantial. While cloud wins from SAP were impressive, total revenue is not accelerating at a material pace,” Anurag Rana, an analyst at Bloomberg Intelligence.

BMO analyst Keith Bachman described the quarterly earnings as “disappointing,” despite these topped the market estimates. The analyst slightly lowered the price target to $79.00 per share from $80.00 and maintained the “Market Perform” rating on ORCL.

“While the results were roughly in line with our estimate and management’s prior guidance of 2-4% growth, constant currency growth was flat, which we view as disappointing and compares with our prior estimate of 1.6% CC and management’s guidance of 1-3% CC,” Bachman said in a note sent to clients.

“In the longer term, we think Oracle must generate mid-single-digit total database growth and 8-9% growth in Big ERP to achieve 4%+ software growth in FY2022. Q3 database subscription revenue increased just 3% CC, and although we think OCI and autonomous database have seen traction, we remain skeptical on the potential magnitude of accelerating total database growth.”

Unlike Bachman and Rana, Bernstein analyst Mark Moerdler described Q3 results as “positive.” He moved to raised the price target on the Outperform-rated ORCL to $81.00 from $71.00.

“We view both the strength of ERP and Autonomous Database as positive as they are core pieces of our Oracle thesis. CEO Larry Ellison ended the management portion of the call naming several logo wins Oracle had made in Fusion ERP and we believe demonstrated the resiliency of the ERP market, even amidst the ongoing economic uncertainty,” the analyst wrote in today's report.

“We remain confident in our Oracle thesis, which is based on the following drivers: 1) SaaS ERP driving growth in Oracle's Apps business; 2) Autonomous Database driving growth in the database business; 3) cost management offsetting Cloud margin pressure; and 4) return of cash.”

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