Categories Analysis, Technology

Key takeaways from Oracle’s (ORCL) Q4 2024 earnings report

Reflecting the strong demand for Oracle Cloud Infrastructure, remaining performance obligations rose 44% in Q4

Oracle Corporation’s (NYSE: ORCL) stock rallied this week after the company announced large cloud infrastructure deals with tech giants Google, OpenAI, and Microsoft. The demand for Oracle’s generative AI infrastructure far exceeds supply — there has been a surge in remaining performance obligations in recent quarters, which points to significant revenue growth going forward.

While the mega sales contracts brought cheer to investors, sentiment was largely unaffected by the IT giant’s weaker-than-expected fourth-quarter results. Post-earnings, the stock made one of the biggest single-day gains and hit a new high. The shares are up around 12% since the release of the Q4 report. Despite the sharp increase in stock price, ORCL looks like a safe investment option right now.

OCI Thrives

The company signed the largest-ever sales contracts in the second half of FY24, thanks to the solid demand for AI large language models in the Oracle cloud. Oracle executives expect the momentum to extend into the next fiscal year and see a double-digit revenue growth in FY25. Remaining performance obligation, an important financial metric that refers to the amount customers are contractually obligated to pay for services that are yet to be delivered, increased at a record pace of 44% and reached $98 billion in Q4.

“We signed several large deals in this quarter, and we have many more — many, many more in the pipeline. Approximately 39% of total RPO is expected to be recognized as revenue over the next 12 months, and this reflects the growing trend of customers wanting larger contracts as they see firsthand how Oracle Cloud Services are benefiting their businesses. Now, while we spent $3.5 billion on capex this quarter, the 2.8 billion shown in the cash flow statement is lower, simply as a result of the timing of payments. We are working as quickly as we can to get cloud capacity built out given the enormity of our backlog and pipeline,” said Oracle’s CEO Safra Ada Catz during the Q4 earnings call.

Mixed Outcome

In the fourth quarter, a 9% revenue growth in the core Cloud Services segment more than offset weakness in the other divisions, driving up total revenues to $14.29 billion. The top-line growth reflects continued strong demand in the Americas. Revenues, however, fell short of expectations. Meanwhile, adjusted earnings per share declined by 2% from last year to $1.63 in the May quarter. The bottom line missed the Streat view, after beating estimates for six quarters in a row.

Extending their pre-market upswing, Oracle’s shares traded higher throughout Wednesday’s session and hovered near the $140 mark. The stock is up 31% since the beginning of 2024.

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