Oracle (ORCL, Financial) shares fell 8% following its Q2 earnings report. The company reported a slight EPS miss, marking its second miss in the last three quarters. Revenue increased by 8.6% year-over-year to $14.06 billion, slightly below analyst expectations. The Q3 adjusted EPS guidance of $1.47-1.51 was also lower than anticipated. Oracle projected Q3 revenue growth of 7-9% (9-11% in constant currency), equating to $14.21-14.48 billion, which was below expectations, partly due to foreign exchange impacts.
Key Highlights:
- Q2 revenue, although below consensus, hit the high end of Oracle's constant currency guidance. EPS exceeded the high end by $0.01. Growth was driven by Cloud Services and License Support, which increased 12% year-over-year to $10.8 billion, representing 77% of total revenue.
- Oracle claims its cloud services are faster and more cost-effective than competitors', remaining a preferred choice for AI workloads and non-GPU cloud infrastructure services. Multi-cloud agreements with Microsoft, Google, and AWS enhance customer flexibility in migrating Oracle databases to the cloud.
- Record AI demand propelled Oracle Cloud Infrastructure (OCI) revenue up 52% year-over-year, with OCI consumption revenue rising 58%. AI infrastructure growth was extraordinary, with GPU consumption surging 336%. Oracle delivered the world's largest and fastest AI supercomputer, featuring up to 65,000 NVIDIA H200 GPUs.
- Total Remaining Performance Obligations (RPO) reached $97 billion in Q2, up 49%, though slightly down from $99 billion in Q1. Cloud RPO grew nearly 80%, making up nearly 75% of total RPO. Approximately 39% of total RPO is expected to convert to revenue over the next 12 months.
- Oracle's cloud service demand remains strong, reflected in RPO growth. The pipeline is expanding faster, with higher win rates. A recent win at Meta, booked in Q3, is expected to boost RPO further.
Despite strong growth and demand, Oracle's second EPS miss in three quarters and light revenue have disappointed investors. The guidance shortfall is largely attributed to foreign exchange impacts. While there is a slight sequential decline in RPO, some of it is converting to revenue. Oracle remains optimistic about its pipeline, and the recent Meta win should boost RPO in Q3. The stock, on a strong uptrend since its Q1 report, may now attract investors due to the pullback.
