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Oracle’s stock dips despite earnings beat

 

Wednesday, September 13, 2023

Today’s headlines

What’s happening: Shares of Oracle Corporation fell on Tuesday, after the company released results for its first quarter.

What happened: The software maker reported better-than-expected earnings for the latest quarter.

However, Oracle’s shares fell by the most in over three years after the company reported a growth slowdown in its cloud business.

How were the results: The Austin, Texas-based company reported single-digit growth in sales for its first quarter.

  • Revenues grew by 9% year-over-year to $12.45 billion, slightly missing the consensus estimates of $12.46 billion.
  • Adjusted earnings came in at $1.19 per share, which topped the Wall Street expectations of $1.15 per share.

Why it matters: Oracle had benefitted during the pandemic from a sharp increase in cloud demand. However, fears of a recession in the US economy have exerted pressure on cloud spending by businesses.

Oracle’s cloud revenues surged 30% year-over-year to $4.6 billion during the latest quarter, with application revenues rising 17% year-over-year and cloud infrastructure revenues jumping 66% year-over-year. However, the cloud growth rate was lower than the 54% surge recorded in the prior quarter.

As of today, AI development companies have signed contracts to purchase more than $4 billion of capacity in Oracle’s Gen2 Cloud. That’s twice as much as we had booked at the end of Q4,” CTO Larry Ellison said during the earnings call.

Management guided to revenue growth between 5% and 7% for the ongoing quarter, compared to market expectations of 8.2% growth. The company also projected adjusted profits between $1.30 and $1.34 per share, versus consensus estimates of $1.33 per share.

How shares responded: Oracle’s shares plummeted 13.5% to close at $109.61 on Tuesday, following the release of quarterly results. The stock has added around 29% over the past six months.

What to watch: Traders will watch the adoption of artificial intelligence, which could provide a significant boost to the company’s cloud infrastructure business ahead.

The markets today

European stocks will be in focus today ahead of industrial production data

Context: European stock markets settled mostly lower on Tuesday, paring gains recorded earlier in the session.

Details: European equity markets started the week with gains, following signs of easing deflation in China. Investors await other economic reports from China, due to be released on Friday, including retail sales, industrial production, and unemployment rate.

The European Central Bank is scheduled to announce its interest rate decision on Thursday, and traders widely expect the policymakers to raise rates by 25 basis points. On the other hand, the US Federal Reserve is expected to keep rates unchanged at next week’s meeting.

On the economic data front, Eurozone’s ZEW Indicator of Economic Sentiment worsened to -8.9 in September, from the previous month’s reading of -5.5. Germany’s ZEW Indicator of Economic Sentiment edged higher to -11.4 in September, from -12.3 in August. Germany’s wholesale prices declined for the fifth straight month, by 2.7% year-over-year, in August.

The STOXX Europe 600 Index fell 0.18% to close at 455.40 on Tuesday, with chemicals among the worst performers, while shares of autos and telecoms gained around 0.7%. Germany’s DAX 40 and France’s CAC 40 lost 0.54% and 0.35%, respectively.

London’s FTSE 100 rose by 0.41% to close at 7,527.53, after data showed regular pay growth in the UK coming in unchanged at 7.8% for the three months ending July. The UK’s unemployment rate rose to 4.3% in May to July, while the number of people in work declined by 207,000.

What to watch: Investors await the release of industrial production data from the eurozone today. Industrial production in the bloc had grown by 0.5% in June but is expected to decline by 0.3% in July.

Other Markets: US trading indices closed lower on Tuesday, with the Dow Jones index, S&P 500 and Nasdaq 100 down by 0.05%, 0.57% and 1.11%, respectively.

The news shaping the markets

Denmark’s defence ministry announced plans to provide a further 5.8 billion kroner ($833 million) to Ukraine. The news sent the safe-haven US dollar index slightly lower this morning.


Japan’s Reuters Tankan sentiment index for manufacturers declined sharply to +4 in September, from a one-year high of +12 in the prior month, and exerted pressure on the JPY/USD forex pair.


South Korea’s export prices fell 7.9% year-over-year in August. This being the eighth straight month of decline in export prices sent the KRW/USD pair lower in forex trading this morning.


India’s retail price inflation eased to 6.83% in August, from 7.44% in the previous month, lending support to the INR/USD forex pair.


New Zealand’s annual food inflation eased to 8.9% in August, from 9.6% in the previous month, which sent the NZD/USD pair lower in forex trading this morning.

What else to watch today

UK’s GDP growth rate, manufacturing production, goods trade balance, industrial production, balance of trade and construction output, as well as US MBA Mortgage applications, inflation rate, gasoline inventories, crude oil inventories, distillate fuel stocks and government budget.


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