Oracle (ORCL) Earnings Beat, Stock Flat
Oracle (ORCL) shares have trended up from 52-week lows hit in late July, after a couple of bad months of decline. The stock got a boost from these earnings and traded slightly higher on the day, at about $153.
The report addressed the main concerns that drove ORCL lower earlier this year: AI customer concentration, huge capital spending (capex), negative free cash flow and financing needs, and the Oracle Cloud Infrastructure (OCI) division. OCI is the focal point analysts watch to judge return on investment (ROI) from all that capex.
The numbers
Revenue beat on both top and bottom lines. Revenue came in around $19.34 billion, up 30% year-over-year, beating the consensus estimate of $19.14 billion. Adjusted EPS was $1.92 versus an expected $1.74, and up 30% from last year's $1.47.
Total cloud revenue was $11.6 billion, up 62%. OCI, the key piece for the anticipated ROI, rose 121% year-over-year. The stock's early move tracked those OCI figures.
Remaining performance obligation (RPO), which is contracted future revenue not yet booked, beat estimates: $664 billion versus the $640 billion estimate, and $29 billion higher than last year.
Free cash flow came in around $5.4 billion, roughly $4 billion better than estimates.
Oracle raised full fiscal year guidance slightly on both sales and EPS. Sales are now expected to top $90 billion, up from $89 billion, with EPS also raised slightly.
Analyst and market reaction
Stifel lowered its price target while keeping a buy rating, setting the target at $200. No one is turning bearish; this looks like a modest rerating given how far the stock fell to its summer lows.
The price action is a little disappointing. The reaction after earnings was very positive at first, with shares trading significantly higher early in the session, but the stock ended basically unchanged on the day, up 4/10 of a percent. The numbers overall were good, but the market still seems to want more. It may take more time to sort out what drives the stock next.
The trade
My view is wait-and-see, with a possibility of downside. The trade example: sell the October 145 put for a little over $5, with the stock trading around $154. That collects premium of about 3.5% against the stock over the next 35 days, and gives the chance to be put the stock near its recent lows around $140 if it weakens over those 35 days. Longer term, there is an opportunity in the name.
