Oracle’s Earnings Come In Light, Analysts Revise Targets (NYSE: ORCL) To Downside

Oracle's stock (NYSE: ORCL) had a mixed response to earnings, with an immediate 6% bump in price from closing after hours giving way to a 1.2% decline during this morning's pre-market. The move from the high to the low of the extended hours session offered a little more than a 10% swing down.

Earnings themselves were a slight miss on the street's expectations, as the $1.47 earnings per share ($1.49 expected), and revenue of $14.13B ($14.39B expected) both missed the mark. Perhaps more importantly however was the guidance, which at $1.62 – $1.66 in EPS for the coming quarter were significantly below the $1.78 consensus.

Looking further into the detail, and Oracle's backlog surged by $48 billion, reaching a total of $130 billion, marking a notable 63% increase compared to the previous year. This growth highlights Oracle's strong bookings, with the company reporting its most successful booking quarter to date.

Oracle's cloud division, encompassing both Software as a Service (SaaS) and Infrastructure as a Service (IaaS), saw a significant boost. Total cloud revenue reached $6.2 billion, reflecting a 25% year-over-year increase. Specifically, SaaS revenue stood at $3.6 billion (up 10%), and IaaS revenue grew substantially by 51% to $2.7 billion. This sector reported revenues of $11 billion, a 12% increase from the previous year. Infrastructure subscription revenues were recorded at $6.2 billion, showing an 18% improvement.

OCI revenue increased by 51%, while cloud database services saw a 28% rise, reaching an annualised revenue of $2.3 billion. The Autonomous Database Consumption Revenue also exhibited growth, rising by 42%. Oracle's total revenues for Q3 were $14.1 billion, up 8%. Operating income increased by 9%, with an operating margin of 44%. Non-GAAP earnings per share (EPS) saw a 4% increase in USD and a 7% increase in constant currency, recorded at $1.47, while GAAP EPS was $1.02, a notable 20% increase in USD.

Operating cash flow for Q3 was $5.9 billion, and cash and marketable securities were $17.8 billion at the quarter's end. Oracle plans capital expenditures of approximately $16 billion for the fiscal year 2025. The company also announced a dividend increase of 25% to $0.50 per share. Oracle faced component delays affecting cloud capacity expansion, expected to ease by Q1 FY26. The company also contended with a decline in software license revenues by 8% and currency headwinds impacting EPS by $0.04.

Through its AI venture “Stargate,” Oracle collaborates with OpenAI and NVIDIA to build large AI clusters, which is expected to be the largest AI training project. This venture is set to enhance Oracle's remaining performance obligation (RPO). Demand across multi-cloud, database on hyperscalers, and sovereign clouds remains robust.

Analysts have so far revised price targets to the downside, with Barclays ($202 from $212), BofA ($175 from $195), and Evercore ISI ($185 from $200) all trimming ORCL this morning.

Overall, Oracle's strategic expansions, particularly in cloud and AI ventures, coupled with successful backlog growth, position the company for ongoing growth despite some challenges in the global economic landscape. Whether the growth rate can keep up with the street's expectations is another question entirely. For the time being, the stock has not seen the reaction of other's to have missed in recent days, indicating belief in the company's ability to get things right.