Oracle stock falls on weak cloud business; earnings top estimates

Oracle’s (ORCL) strong earnings growth in the first quarter failed to amuse investors Monday when the company’s below-consensus cloud revenues triggered a stock sell-off. Adjusted earnings of the enterprise software company rose to $2.8 billion or $0.71 per share in the first quarter from $2.6 billion or $0.61 per share in the same period last year, exceeding Wall Street predictions. Meanwhile, reported earnings moved up 13% to $0.57 per share.

During the three-month period ended August 31, which is typically the slowest quarter of the year for Oracle, total revenues edged up 1% year-over-year to $9.2 billion. Cloud Services and License Support revenues grew 3%, while Cloud License and On-Premise License revenues dropped 3%. The top-line fell short of expectations.

“We are off to an excellent start with Q1 non-GAAP earnings per share growing 19% in constant currency. That strong earnings per share growth rate increases my confidence that we will deliver on another fiscal year of double-digit non-GAAP earnings per share growth,” said CEO Safra Catz.

Cloud Services and License Support revenues grew 3%, while Cloud License and On-Premise License revenues dropped 3%

Ever since Oracle adopted a new accounting standard last year, merging its SaaS, PaaS and IaaS cloud services with the software license division, there is a lack of clarity over segment-wise revenue performance. There is widespread concern that the transition to more cloud-based services is not picking momentum even after several years.

Though Oracle’s core business remains relevant even in the changed industry scenario, overall performance continues to be dragged by muted revenue growth, which often reflects in its guidance. According to market watchers, the cloud business will face more stringent competition going forward, and the situation might prompt Oracle to invest in acquisitions to ramp up the business segment.

Oracle shares are currently trading broadly at the levels seen at the beginning of the year. The stock hit a peak in mid-March but retreated from the highs in the following weeks. It dropped about 5% in the after-hours trading Monday.

Oracle reports earnings and revenue beat for Q4