Oracle’s (ORCL) fiscal second-quarter revenue miss came amid underperformance in license and certain key cloud assets, while the software maker’s third-quarter outlook lacks “meaningful” upside potential, Morgan Stanley said Tuesday.
Late Monday, the company reported that its revenue rose 5% year over year to $12.94 billion in the quarter through Nov. 30, but fell short of the Capital IQ-polled consensus of $13.05 billion. Adjusted per-share earnings grew to $1.34 from $1.21 a year earlier, just above Wall Street’s $1.33 view.
Oracle cloud infrastructure, or OCI, revenue growth slowed from first-quarter’s pace, while capital expenditures fell year over year, “disappointing even against a lower bar,” Morgan Stanley said in a note. “Management reasoned that a near-term focus on accommodating large deals had led to capacity constraints and some revenue slippage in smaller deals, while also creating increased lumpiness and execution risk in the forward model.”
For its third quarter, the company projects adjusted EPS at $1.35 to $1.39, while revenue, including Cerner, is expected to grow 6% to 8%, Chief Executive Safra Catz said on an earnings conference call late Monday, according to a Capital IQ transcript. Although Oracle’s guidance is within the Street’s projections, it lacks “meaningful upside to estimates and, as a result, (leaves) the valuation looking relatively demanding,” Morgan Stanley said.
The brokerage cut its price target on the Oracle stock $106 from $107 while maintaining its equal-weight rating. The stock was down nearly 12% in Tuesday late-afternoon trade.
For the current fiscal year, Oracle expects its capital expenditures around $8 billion, implying that its second-half spending will be “considerably higher” as it brings more capacity online, Catz told analysts.
The company expects to sign “a couple more billion-dollar” cloud infrastructure contracts in the next few weeks, Chairman Larry Ellison said on the call. “Cloud infrastructure demand is huge and growing at an unprecedented rate.”
“With no signs of a positive inflection in this quarter and management not sharing any color on (artificial intelligence) bookings or an explanation on the Fusion growth deceleration, despite the easier comparison, investors are likely to view OCI increasingly as a show-me story” into second half of the year, Morgan Stanley said in the Tuesday note.