Oracle (ORCL) reported earnings on Monday evening, and it, rightfully so, was the talk of the town…
The gigantic $315 billion company missed Wall Street revenue estimates with cloud services slowing for the second consecutive quarter (25% growth year-over-year this quarter versus the 30% analysts expected). Two quarters ago, the segment was growing at 54%.
Slowing is happening. But that’s not what caused investors to punish the stock afterhours, pushing it down 9%, and why it's fallen to 12.5% now.
During earnings season, it’s not the companies that matter – only Wall Street does. If you miss their estimates, you’ll likely fall. It doesn’t matter how fast you're growing.
This short-termism can be gruesome. But it can also be full of opportunities.
Here's Why It Matters: We need to take a step back here and interpret the numbers without staring at a spreadsheet.
54% cloud-service revenue growth two quarters ago is… crazy. Insane.
There was nowhere to go but down.
But even though we came down to about half of that, to 25%, we need to remember that Oracle is still growing cloud revenue well over double digits in a macroeconomic environment riddled with persistently high inflation and interest rates at 20-year highs.
Once we take that as the backdrop, 25% growth sounds pretty good (I’d love 25% growth in my income no matter what’s happening in the world).
It’ll only be a matter of time until people come to their senses and understand the growth prospects here.
Bottom Line: A key part of the earnings call was CEO Larry Ellison talking about data centers.
To supplement the “slowing growth” of cloud revenue, Oracle is building 100 of them next year.
Right now, they only have 66.
That may sound ambitious for a company that just “missed” revenue, but we’re assured that they can build them “cheaply and efficiently.” And with AI and cloud services wholly dependent on data centers to grow, this is a good strategic move for long-term business.
The data center market is projected to grow 33% by 2028, to $438 billion, and moves now could take a chunk of that.
Microsoft (MSFT)'s Azure has the largest number of data centers worldwide – 160.
This helps them maintain a 25% market share in cloud computing revenue worldwide, second only to Amazon (AMZN)’s Amazon Web Services (AWS). ORCL is nowhere near this race but has $8.2bn in cash right now, which they can largely use to join in and increase top and bottom lines dramatically in the years to come.
Buy the stock now, because 12.5% lower today is one of the best deal around the holidays you can find.
