11 March 2021

Oracle Shares Slide Despite Profit Beat

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What’s happening: Shares of Oracle Corp fell in extended trading on Wednesday, despite the company surpassing estimates for the fiscal third quarter.

What happened: Oracle benefited from businesses being forced to shift their operations to the cloud to support the remote work trends amid the covid-19 pandemic.

Although the software maker has been working on building more datacentres to compete with Amazon and Microsoft, revenue growth in its cloud division disappointed investors.

How were the results: The Redwood Shores, California-based company reported year-over-year growth in revenues for the third consecutive quarter, after two straight years of contraction.

  • Revenues grew 3% to $10.09 billion for the quarter, edging past market views of $10.07 billion.
  • On an adjusted basis, earnings rose 20% to $1.16 per share, beating expectations of $1.11 per share.

Why it matters: Oracle’s CEO Safra Catz and Chairman Larry Ellison said the company is pushing to achieve revenue growth by focusing on cloud-based software for services.

“We are opening new regions as fast as we can to support our rapidly growing multibillion dollar infrastructure business,” Ellison said.

Several small- and medium-sized companies that were impacted by the pandemic have resumed spending, analysts at Cowen & Co noted. However, Oracle was late to enter the cloud computing space and its market share continues to lag that of Amazon and Microsoft.

Revenues from the company’s cloud services and licenses support division grew barely 5% to $7.25 billion last quarter, falling short of the consensus estimate of $7.27 billion. Oracle’s cloud license and on-premise license revenues grew 4% to $1.28 billion, versus market expectations of $1.21 billion.

In a conference call following the release of quarterly results, Ellison listed over 100 SAP customers that have totally or partly switched their financial application business from SAP to Oracle.

For the quarter ending in May, the company guided to non-GAPP profits between $1.28 and $1.32 per share, versus market expectations of $1.28 per share. Management projected revenue growth of 5% to 7%, exceeding the consensus estimate of 4%. However, on a constant currency basis, this translates to revenue growth of merely 1% to 3%.

Oracle boosted its quarterly dividend from 24 cents per share to 32 cents per share and disclosed a board authorisation of an additional $20 billion in share buybacks.

What to watch: Markets would keep an eye on companies switching their business to Oracle. Investors also expect Oracle to gain a strong foothold in the cloud business and give tough competition to rivals.

The Markets Today

     

US stocks will be in focus today, ahead of initial jobless claims data due to be released later in the day.

Context: The Dow Jones index closed sharply higher on Wednesday after House Democrats cleared the massive $1.9 trillion covid-19 rescue bill.

Details: Investors cheered as House Democrats cleared the covid-19 relief bill, which was passed by the Senate over the weekend. The bill now goes to President Joe Biden, who is widely expected to sign it into law on Friday.

Wall Street closed mostly higher on Wednesday after declining bond yields and the passing of the new stimulus package boosted overall market sentiment. Investors bought growth stocks as well as stocks of companies that are expected to benefit from a quicker economic recovery.

Markets also breathed a sigh of relief on news of US consumer prices rising 0.4% in February, as was widely anticipated. The Consumer Price Index rose 1.7% on a yearly basis, also in-line with market views. The inflation report eased concerns around rising prices, which had earlier pushed bond yields higher. The US 10-year Treasury yield slipped to 1.52% on Wednesday.

The blue-chip index jumped 464.28 points to settle at a record high of 32,297.02 on Wednesday, while the S&P 500 rose 0.6% to 3,898.81. Cyclical stocks led the rally, with the S&P 500 energy sector surging around 2.5%.

“Today’s strength is coming from pro-cyclical stocks as investors continue to oscillate back and forth between beneficiaries of cyclical growth and those better secularly positioned,” said analyst Chris Hussey of Goldman Sachs.

Despite the cheer, the Nasdaq 100 closed 0.33% lower on Wednesday, at 12,752.07, after rising sharply earlier in the session. The tech-heavy index had climbed around 4% in the previous session.

What to watch: Markets widely expect President Biden to sign the stimulus bill into law on Friday. Investors also await US data on initial jobless claims and job openings. The number of Americans filing for jobless benefits is expected to decline to 725,000, from 745,000 in the week ended February 27. The number of job openings in the US is likely to rise to 6.6 million in January, from 6.646 million in December.

Rising covid-19 cases remain a major concern for markets, with total infections in the US surpassing 29.1 million.

Other Markets: European indices closed mostly higher on Wednesday, with the German DAX 30, French 40 and STOXX 600 up by 0.71%, 1.11% and 0.40%, respectively. The FTSE 100 bucked the trend and fell slightly, by 0.07%.

Support & Resistances
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Futures at 0400 (GMT)

What else to watch today

     

Turkey’s current account and foreign exchange reserves, South Africa’s current account, SACCI business confidence index, gold production, mining production and manufacturing production, Brazil's consumer price inflation, Eurozone’s interest rate decision, Argentina’s inflation rate as well as the US EIA’s natural-gas stocks.

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