Tuesday, September 14, 2021

Oracle Shares Slide Despite Upbeat Earnings

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What’s happening: Shares of Oracle fell in extended trading on Monday, despite the company reporting upbeat earnings for its fiscal first quarter.

What happened: The world’s second-largest software maker has been transitioning to a subscription-based model in its attempt to tap the benefits of cloud computing.

However, Oracle witnessed a slowdown in the demand for one of key products, which resulted in a sales miss for the quarter.

How were the results: The enterprise software giant recorded the fifth consecutive quarter of year-over-year sales growth, after reporting a decline for two straight fiscal years.

  • Revenues grew 4% to $9.73 billion, slightly short of the consensus estimate of $9.77 billion.
  • Adjusted earnings came in at $1.03 per share, ahead of the company’s own guidance range of between 94 and 98 cents per share surpassing market views of 97 cents per share.

Why it matters: With the pandemic encouraging companies to shift their operations online, Oracle has been looking to increase its foothold in the cloud computing space. For this, the company has made major investments in setting up large datacentres.

Although the Austin, Texas-based company is set to benefit from cloud computing, stiffening competition from peers like Amazon Web Services, Microsoft's Azure, and Salesforce.com is likely to impact Oracle’s overall growth.

Oracle’s revenues from cloud services and license support grew 6% to $7.37 billion, but still fell slightly short of Street expectations of $7.4 billion. Meanwhile, cloud and on-premise license revenues contracted by 8% to $813 million, missing expectations of $865 million.

The company projected revenue growth of 3%-5% year-over-year in the current quarter, in-line with the consensus estimate of 4%. Management also guided to profits between $1.09 and $1.13 per share, versus Street expectations of $1.09 per share.

“Taken together, IaaS and SaaS are Oracle’s fastest growing and highest margin new businesses. As these two cloud businesses continue to grow they will help expand our overall profit margins and push earnings per share higher,” CEO Safra Catz said.

Oracle also repurchased $8 billion worth of its common stock during the recent quarter.

How shares responded: Oracle’s shares declined as much as 3.7% following the release of earnings results, but trimmed losses after the company announced its guidance. The stock, which surged to an all-time high last month, fell 1.9% to $87.20 in after-hours trading on Monday. Oracle’s shares have gained more than 39% year to date, around double the rise recorded by the S&P 500 index.

What to watch: Investors will keep an eye on rising competition in the cloud computing space, especially developments at AWS and Azure. Markets will also monitor Oracle’s further investments in cloud.

The Markets Today

     

Crude oil will be in focus today ahead of the API’s (American Petroleum Institute) report on crude oil inventories.

Context: Prices for crude oil climbed to around a six-week high on Monday due to a slow recovery in US output following Hurricane Ida.

Details: US crude oil started the week on a strong note, rising above the $70 per barrel mark, as Hurricane Ida impacted oil production in the Gulf of Mexico.

Oil prices also found support from the OPEC (Organization of the Petroleum Exporting Countries) raising its forecast for 2022 crude demand from 3.28 million bpd (barrels per day) to 4.15 million bpd.

However, gains remained limited as the OPEC also lowered its global oil demand outlook for the last quarter of 2021. The cartel now expects oil demand to average at 99.70 million bpd in the quarter, down from its earlier forecast of 110,000 bpd.

Worries around the spread of covid-19’s Delta variant also limited overall gains for oil. Investors grew concerned on news of the city of Putian in the south-eastern province of Fujian in China shutting down gyms and cinemas as well as close some highway entry and exit points to contain the pandemic.

News around the US and China looking to release oil from their strategic reserves also impacted market sentiment for oil.

WTI crude for October delivery gained 1.1% to close at $70.45 per barrel on the NYMEX on Monday. November Brent crude settled higher at $73.51 per barrel on ICE Futures Europe.

October gasoline rose to $2.1609 a gallon, with October heating oil adding 0.4% to close at $2.1583 a gallon on Monday. Prices for natural gas surged to their strongest level since February 2014. October natural gas climbed 5.9% to settle at $5.23 per million British thermal units.

What to watch: Traders await API’s data on crude oil stockpiles in the US, which had declined by 2.882 million barrels in the week ending September 3, following a 4.045 million barrel contraction in the prior week.

Rising covid-19 cases remain a major concern for markets, with total global infections crossing 225.2 million.

Other Markets: European trading indices closed higher on Monday, with the FTSE 100, German DAX 30, French 40 and STOXX Europe 600 up by 0.56%, 0.59%, 0.20% and 0.29%, respectively.

Support & Resistances
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Futures at 0400 (GMT)

What else to watch today

     

UK’s claimant count, employment change and unemployment rate, India’s wholesale price inflation rate, Spain's consumer price inflation, South Africa’s mining production, gold production and SACCI business confidence index, America’s NFIB small business optimism index, consumer price inflation rate and Redbook index, Turkey’s car production, Canada’s manufacturing sales, Brazil’s industry confidence indicator, China’s foreign direct investment, as well as Argentina’s inflation rate.