Oracle Cloud Bookings Surge 44%, Shares Jump 9%

Key Takeaway

• Oracle's total remaining performance obligations surged 44% to $98 billion, driving a 9% jump in shares during extended trading.
• New cloud partnerships with Google and Microsoft, along with AI demand, are expected to fuel double-digit revenue growth through May 2025.
• Despite strong cloud infrastructure revenue growth of 42%, Oracle's total quarterly revenue of $14.3 billion fell short of the $14.6 billion analyst estimate.

Strong Bookings Drive Momentum

Oracle Corp. reported better-than-expected bookings, indicating continued momentum in its cloud computing efforts against larger tech rivals. The company's total remaining performance obligations, a measure of future contracted sales, increased 44% to $98 billion in the fiscal fourth quarter, surpassing analysts' average estimate of $73.9 billion. This positive performance led to a 9% jump in Oracle's shares during extended trading.

CEO Safra Catz highlighted the significance of recent large sales contracts, driven by high demand for training AI large language models in Oracle Cloud. Catz projected double-digit revenue growth for the current fiscal year ending in May 2025, fueled by strong AI demand. She noted that growth should accelerate as the cloud unit's capacity catches up with demand.

Cloud Partnerships and Growth

Oracle announced a new agreement to make its database available on Google’s cloud infrastructure, with availability expected in November. This follows a similar deal with Microsoft announced in late 2023, which Chairman Larry Ellison believes will "turbocharge our cloud database growth." Additionally, OpenAI, which has received significant funding from Microsoft, will use Oracle’s cloud infrastructure for additional capacity. Oracle's cloud has gained a reputation for success with generative AI startups, including customers like Reka, MosaicML, and Elon Musk’s xAI.

Despite these positive developments, Oracle's cloud infrastructure revenue, while up 42% to $2 billion, showed a deceleration from the 49% growth rate in the prior quarter. The cloud business remains smaller than rivals Amazon Web Services and Microsoft Azure but is growing faster.

Financial Performance

Oracle's total revenue for the quarter increased by 3.3% to $14.3 billion, slightly below the average analyst estimate of $14.6 billion. Profit, excluding some items, was $1.63 per share, compared to analysts' projection of $1.65. The cloud services and license support segment generated $10.23 billion in revenue, up 9% but slightly below the StreetAccount consensus of $10.29 billion. The cloud and on-premises licenses business contributed $1.84 billion in revenue, down 15% and lower than the $2.09 billion StreetAccount consensus.

Oracle's cloud applications business, including its Fusion apps for corporate finance, increased 10% to $3.3 billion. This growth rate represents a slowdown from the roughly 14% growth seen in recent quarters and fell below analysts' estimates. The company's results have been weighed down by its health unit, which includes Cerner, the electronic health records business acquired in June 2022 for $28 billion. Oracle is focused on transitioning this legacy software business to the cloud, facing setbacks such as customer departures and the renegotiation of a flagship federal contract.

Street Views

• Anurag Rana, Bloomberg Intelligence (Bullish on Oracle's cloud infrastructure business):

  "The new partnerships are likely to accelerate growth in Oracle’s cloud infrastructure business, which could help offset a slowdown in applications."

Management Quotes

• Safra Catz, CEO of Oracle:

  "Oracle signed the largest sales contracts in our history — driven by enormous demand for training AI large language models in the Oracle Cloud."
  "Revenue growth will increase by double digits in the current fiscal year ending in May 2025, fueled by strong AI demand. Growth should accelerate through the year as the cloud unit’s capacity begins to catch up with demand."

• Larry Ellison, Chairman of Oracle:

  "[The agreement with Microsoft] will turbocharge our cloud database growth."