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Oracle Jumps as ‘Large’ New Cloud Contracts Spur Revenue Growth

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(Bloomberg) — Oracle Corp. surged 11% after signaling that growth in its closely watched cloud computing business is stabilizing, showing progress in its bid to capture more market share in the competitive market.

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Cloud revenue jumped 25% to $5.1 billion in the period that ended in February, the company said Monday in a statement, surpassing Wall Street’s $5.06 billion estimate. Of that, $1.8 billion came from renting out computing power and storage over the internet and $3.3 billion from applications.

The Austin-based company, known for its database software, is focused on expanding its cloud infrastructure business to compete with Amazon.com Inc., Microsoft Corp. and Alphabet Inc.’s Google. That effort has faced headwinds in recent quarters as growth rates slowed. But there were signs of stabilizing in the third quarter with sales gaining at nearly the same pace as the three months preceding it.

Remaining performance obligation, a measure of backlogged sales, was $80 billion at the end of the quarter. That’s significantly ahead of the $59 billion expected by analysts. Chief Executive Officer Safra Catz pointed to this figure, which she said was driven by “large new cloud infrastructure contracts signed in the third quarter,” as evidence of customer momentum.

“We expect to continue receiving large contracts reserving cloud infrastructure capacity,” Catz said, adding that Oracle is “very rapidly” opening new cloud data centers to meet demand.

Shares jumped to as high as $126.46 in extended trading. Oracle’s stock was down about 10% over the past six months through Monday’s close, lagging the iShares software ETF, which gained 16%.

The results were “certainly better than feared,” said Jeffries analyst Brent Thill in an interview on Bloomberg TV, noting that other cloud vendors like Amazon and Microsoft have similarly reported strong results recently.

Total sales in the fiscal third quarter increased 7.1% to $13.3 billion, roughly in line with analysts’ estimates, according to data compiled by Bloomberg. Profit, excluding some items, was $1.41 a share, compared with the average estimate of $1.38.

Sales of Fusion software for managing corporate finance increased 18% in the quarter from a year earlier. Revenue from NetSuite, enterprise planning tools aimed at small- and mid-sized companies, was up 21%. Revenue from both businesses gained 21% in the previous period.

After acquiring Cerner, the electronic health records company, Oracle has been focused on modernizing the legacy software business. It “finished moving the majority of Cerner customers” to Oracle cloud infrastructure in the quarter, Chairman Larry Ellison said. Further updates over the coming year, such as a new suite of applications, will “transform Cerner and Oracle Health into a high-growth business for years to come,” he added.

(Updates with CEO comment in fourth paragraph and adds software-specific sales)

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