(Bloomberg) — Oracle Corp. reported quarterly sales in line with analyst estimates after its cloud business missed expectations for further growth. Shares fell in extended trading.
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Revenue for the fiscal third quarter rose 18% to $12.4 billion, just below analysts’ median estimate of $12.41 billion, according to data compiled by Bloomberg. Earning, excluding some items, was $1.22 per share. Analysts, on average, projected $1.20 per share.
Cloud revenue, the closely watched segment Oracle has been trying to expand, rose 45% to $4.1 billion in the period ended February 28, the Austin, Texas-based company said Thursday in a statement.
While Oracle’s cloud infrastructure business (computing and storage capacity leasing) has lagged relatively behind in the market, analysts have been optimistic that the services are winning customers and helping to accelerate growth. The software giant has employed aggressive marketing and favorable pricing in an attempt to win over customers from its biggest competitors, Microsoft Corp. and Amazon.com Inc., which have seen slowing growth in the cloud division in recent quarters. .
Large cloud deals, including one announced with Uber Technologies Inc., added to investor enthusiasm ahead of earnings, JP Morgan’s Mark Murphy wrote. Analysts at Mizuho Securities said ahead of the results that Wall Street’s estimates for Oracle’s cloud business “look conservative.”
But the results looked “a little disappointing,” Dan Morgan, a senior portfolio manager at Synovus Trust, said in an interview with Bloomberg Television. Tyler Radke, an analyst at Citigroup Inc., said the numbers may also indicate weaker demand for information technology amid continued economic uncertainty.
The shares fell about 4.6% in premarket trading before the New York stock exchanges opened on Friday after closing at $86.87. Oracle has been one of the steadier tech stocks over the past year, up 14% over the 12 months to Thursday.
Sales will rise about 16% in the current period ending in May, chief executive Safra Catz said in a conference call after the results. The outlook is in line with estimates. Earning, excluding some items, will be $1.56 a share to $1.60 a share, she added. Analysts, on average, projected $1.45 per share.
“We continue to believe that the company is handling the slowdown better than most major rivals,” Bloomberg Intelligence’s Anurag Rana wrote.
Oracle’s digital medical records provider, Cerner, generated sales of $1.5 billion in the period, and Chairman Larry Ellison said the company anticipates even more growth for the unit.
“While we are pleased with this early success of Cerner’s business, we expect the signing of new healthcare contracts to accelerate in the coming quarters,” Ellison said in the statement. Catz said the division’s operating margin has increased more than 5 percentage points since the acquisition.
More than two-thirds of Oracle’s cloud revenue is generated by business applications such as Fusion software for managing corporate finances and NetSuite’s business planning tools, which are aimed at small and medium-sized businesses. Fusion sales increased 25% in the quarter, compared to 23% growth in the prior period. NetSuite revenue increased 23%, compared to 25% in the fiscal second quarter.
Oracle raised its dividend 25% to 40 cents per share. Ellison, the company’s largest shareholder, “did not participate in the deliberation or vote on this matter,” the company said. The extra 8 cents a share in quarterly dividends will net Ellison about $91.6 million, based on his ownership of more than 1.14 billion shares disclosed at the end of December.
(Updates with premarket trading in seventh paragraph. An earlier version corrected the adjusted earnings per share outlook in the eighth paragraph.)
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