Oracle Corporation (NYSE: ORCL) announced its fiscal Q3 2022 results on Thursday, March 10, 2022, in which it missed earnings estimates but matched revenue expectations.
What to look for: Oracle reported that net income dropped because of two investments. First, the company's earnings were affected by the dropping share price of Oxford Nanopore gene sequencing and an operating loss from Ampere Computing. However, management is confident that the investment in the two tech firms will deliver solid returns for the company. In addition, during the quarter, the company was impacted by supply shortages which affected the ability to meet demand as quickly as anticipated.
Earnings: Stockearning’s Estimated EPS for Q3 2022 was $1.18 per share, but Oracle reported EPs of $1.13. The company produced an earnings surprise of 22.68% in the second quarter with actual EPs of $1.19 versus an estimated EPS of $0.97. For the fourth quarter, the company expects adjusted EPS of $1.35 to $1.39 per share versus analysts’ estimates of $1.38 per share. Historical EPS performance shows that in the past 12 quarters, the company has topped estimates 23 times (63%), met five times (13%), and missed eight times (22%).
Revenue: The company reported revenue of $10.51 billion in line with analyst expectations and up 4% YoY in USD and up 7% YoY in constant currency. Cloud license and service revenues increased 5% and 8% in USD and constant currency, respectively, to $7.6 billion, with on-premise revenues being $1.3 billion. In the fourth quarter, the company is calling for a 3% to 5% growth in revenue, and analysts are calling for revenue of $11.76 billion representing 4.8% growth. The outlook doesn't include a contribution from Cerner, whose deal is likely to close during the quarter.
Stock movement: ORCL shares have lost 14.3% since the company released its last earnings release. Interestingly, following the earnings release, the company's shares have been DOWN 27 times in the past 48 quarters. So, the historical price reaction suggests a 56% probability of the share price going DOWN following the earnings release. According to the Stockearning algorithm, the predicted volatility on the first day is +/-5%, while the predicted volatility on the seventh day is +/-5%.
What analysts are saying: Cowen Analyst J Derrick Wood slashed his price target in the stock from $115 to $110 but maintained a buy rating on the shares. The analyst is optimistic about the company's growth acceleration triggers and loves how the quarterly results are set up. Wood stated that OCI is doing an excellent job of increasing its entry into the Cloud Infrastructure sector and that the more traction they have, the more upward impetus on the growth model would be applied.
Recently Deutsche Bank analyst Brad Zelnick slashed his price target on the stock from $120 to $110 but maintained a Buy rating on the stock. The analyst sees the software sector basics improving in 2022 "while maintaining a healthy regard for the market and economic environment." He believes the category "sets up well from here" but advises a more balanced approach with higher value sensitivity than previous years.
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