Oracle's profit, cloud growth forecasts drag down shares

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Oracle faces strong competition from big cloud players such as Amazon.com and Microsoft.
Oracle faces strong competition from big cloud players such as Amazon.com and Microsoft.

Oracle forecast current-quarter adjusted profit largely below Wall Street's estimates and indicated to slowing growth in its soaring cloud business, sending the company's shares down as much as 5% in aftermarket trading.

Shares of the business software maker, which reported market-beating revenue and profit for the first quarter on Thursday, initially rose, but reversed course after the forecast. They had gained about 37% this year.

Oracle said it expected adjusted profit to be between 64 cents per share and 68 cents per share for its second quarter ending November.

Analysts on average were expecting 68 cents per share, according to Thomson Reuters I/B/E/S.

Oracle - a late entrant to the cloud market - has been aggressively pushing into the business as more and more clients ditch the costlier software licensing model.

The company, however, is facing strong competition from other big cloud players such as Amazon.com, Salesforce.com and Microsoft.

Oracle forecast total cloud revenue to increase 39% to 43% in the second quarter, lower than the 51.4% growth it reported in the latest quarter.

"It is natural to expect cloud revenue to decelerate as Oracle grows its cloud revenue off (a) bigger base," said Wedbush Securities analyst Steve Koenig.

Still, Oracle expects cloud bookings to grow.

"I expect Q2 cloud booking growth to be strong or stronger than our Q1 growth rate," co-CEO Mark Hurd said on a post-earnings call.

Oracle said in late August it would hire more than 5 000 engineers, consultants, sales and support people this year to boost the fast-growing business.

Earlier this month, the company linked the equity package of its two CEOs, Hurd and Safra Catz, and CTO Larry Ellison to performance targets that include $20 billion in total cloud revenue in a fiscal year.

The company reported revenue of about $4.57 billion for the business in its financial year that ended on 31 May.

Total cloud business revenue rose to $1.47 billion in the three months ended 31 August, while it increased to $5.92 billion in the company's traditional software licensing business.

Total adjusted revenue rose about 7% to $9.21 billion, handily beating expectations of $9.03 billion.

On an adjusted basis, Oracle earned 62 cents per share, beating estimates by 2 cents.

Koenig said this was helped by new software licence outperformance and lower foreign exchange impact.

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