Shares of the database giant Oracle Corp. fell more than 8% in after-hours trading today after it reported fiscal second-quarter sales and guidance for the current period that fell below Wall Street’s estimates.

The company reported earnings before certain costs such as stock compensation of $1.34 per share, coming in just ahead of the $1.32-per-share forecast. Overall revenue grew 5% from a year earlier, to $12.94 billion, falling short of the Street’s $13.02 billion consensus estimate. The company was at least much more profitable, with net income rising 44%, to $2.5 billion.

For the current quarter, Oracle is calling for adjusted net income of $1.35 to $1.39 per share, the midpoint of which is in line with Wall Street’s call for earnings of $1.37 per share. In terms of revenue, Oracle forecasts 6% to 8% growth, versus the Street’s forecast for $13.34 billion, which implies growth of 7.6%.

There are a number of bright spots in Oracle’s business. Prior to today’s report, Oracle’s stock had risen 40% in the year to date on the continued growth of its cloud computing business, Oracle Cloud Infrastructure. It has slowly but surely clawed its way into what was once a three-way battle between Amazon Web Services Inc., Microsoft Corp. and Google Cloud, though it still trails far behind them.

However, it’s also known that Oracle is struggling to integrate Cerner, the electronic health data company it acquired for $2.8 billion in 2022. Oracle has been trying to transform Cerner’s services into more agile, cloud-based offerings, but this is causing some disruption and pressuring the company’s overall growth rate.

Oracle said revenue from cloud services and license support grew 12% in the quarter to $9.64 billion, though this was below the Street’s consensus estimate of $9.71 billion. Elsewhere, revenue from cloud and on-premises licenses dropped 18% to $1.18 billion, missing the consensus estimate of $1.21 billion.

Revenue from services also came up short, at $1.37 billion versus the $1.4 billion estimate.

Overall cloud revenue, which includes both the Oracle Cloud Infrastructure business and cloud-based applications, rose 25%, to $4.8 billion. Within that segment, cloud infrastructure sales hit $1.6 billion, up 52%, growing faster than its three main rivals in that industry. This was helped by the addition of new clients, including Elon Musk’s artificial intelligence startup xAI, Halliburton Corp. and Samsung Electronics Ltd. Cloud application revenue rose 15% from a year ago, to $3.2 billion.

The company also reported Fusion Cloud ERP, its financial application service for large enterprises, delivered $800 million in sales, up 21%, while NetSuite Cloud, for smaller organizations, added another $800 million, also growing 21% from a year earlier.

The growth in certain key cloud segments suggests Oracle’s transformation is proceeding well, but the problem is that its new revenue sources are only just barely making up for the slowdown in old, on-premises license revenue, said Holger Mueller of Constellation Research Inc.

The analyst explained that it’s key for Oracle’s growth strategy to continue investing in its cloud build-out, which it has done with almost $7 billion spent on capital expenditure during the quarter. “However, investors may question why this is the first time its capital spending came in at under $8 billion,” Mueller added, saying they want to see strong investment. “The good news is that Oracle managed to become more profitable, and when revenue only grows by 4% but the earnings per share are up 50%, that shows experienced leadership by Catz and her team.”

Charles King of Pund-IT said that although Oracle’s earnings results were weaker than expected, they were not terrible by any means. Rather, he said it’s probably the case that the after-hours stock decline stems from the fact that investors think Oracle’s shares are unlikely to go much higher this year. “It’s better to take profits today than risk further declines tomorrow,” he said.

In a statement, Oracle Chief Executive Safra Catz insisted that demand for the company’s cloud infrastructure and generative AI services has been growing at an “astronomical rate.” She added that the cloud business is close to hitting $20 billion in annual revenue run rate. “Business is good and getting better,” Catz added.

Although he said Oracle’s results were decent enough, King noted that Catz’s comments on cloud growth apparently ignored whtat many investors probably noticed — Oracle’s OCI revenue may be up for the year, but it declined 4% on a sequential basis, compared to the prior quarter. “Catz also claimed that revenues could have been substantially higher if not for constraints in OCI capacity,” King pointed out. “But that is not exactly a ringing endorsement of how Oracle is managing its cloud infrastructure.”

The company said it had managed to pick up a substantial amount of cloud business from rival Microsoft, and during the quarter announced that its database software will soon launch on that company’s Azure cloud service. In the next few months, the company will bring online 20 new data center facilities that are directly connected with Azure.

“I expect the OCI growth rate to be over 50% for a few years,” Oracle Chairman and Chief Technology Officer Larry Ellison (pictured) said on a conference call with analysts.

Also during the quarter, Oracle acquired the Australian field service software startup Next Technik Inc., for an undisclosed price. That came alongside a number of major enhancements to the NetSuite platform. The company also announced the availability of Nvidia Corp.’s DGX cloud platform, alongside the Nvidia AI Enterprise software platform, on its cloud infrastructure.

Oracle’s 41% stock rise so far this year before today’s after-hours movement outperformed the broader S&P 500 Index, which is up around 20% over the same period.

Photo: Robert Hof/SiliconANGLE