Oracle Earnings: Reported and Guided Revenue Come in Light; Shares Still Overvalued As Stock Tumbles

In its fiscal first quarter, Oracle’s ORCL revenue came in short of our expectations. The letdown on revenue combined with light top-line guidance for the next quarter has the stock tumbling by 9% after hours upon results. But even with the market semicorrection, we think the stock is still significantly overvalued. While Oracle’s cloud infrastructure revenue is growing the fastest of any of the firm’s segments, we think the market is overly optimistic about the level of cloud market share Oracle can get to in the long term. We aren’t undermining near-term growth potential, however, as we recognize the firm is going through a catch-up period on data center rollouts. Altogether, we are maintaining our fair value estimate for the narrow-moat stock at $76 per share, as our more bearish outlook on information as a service, or IaaS, in the long term remains unchanged. We are eager to hear more details from management on the longer-term outlook at the financial analyst meeting day next week.

In the first quarter, revenue increased by 8% year over year in constant currency to $12.5 billion. Oracle cited supply issues when it comes to meeting demand for its data centers as the company is trying to build them out as quickly as possible. Nonetheless, its cloud infrastructure business was still able to grow at 64% in constant currency to $1.5 billion. While management touted its IaaS business as growing much faster than its peers, Oracle’s IaaS is still relatively small in revenue compared with its giant competitors. Non-GAAP EPS in the quarter was $1.19, which marked a 14% improvement in constant currency compared with the prior-year quarter.