Oracle jumps after big cloud contracts spur bookings growth

(Bloomberg) — Oracle Corp. stock rose 13% after reporting a spike in bookings attributed to its closely watched cloud computing business, showing progress in its attempt to capture more competitive market share.

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The remaining performance commitment — a measure of Oracle's sales backlog — was $80 billion at the end of the February quarter. This was much higher than the $59 billion that analysts had expected. CEO Safra Catz pointed to the figure, which she said was driven by “large new cloud infrastructure contracts signed in the third quarter,” as evidence of momentum.

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. This effort has faced headwinds in recent quarters as growth rates have slowed. But there were signs of stabilization in the third quarter, with sales rising at roughly the same pace as the previous three months.

Shares jumped to a high of $130.72 in extended trading. Oracle stock is down about 10% over the past six months through Monday's close, lagging the iShares Software ETF, which is up 16%.

“We expect to continue to receive large contracts that reserve cloud infrastructure capacity,” Katz said on a conference call, adding that Oracle is “very quickly” opening new data centers to meet demand.

The company said cloud revenue jumped 25% to $5.1 billion in the period ending in February, ahead of Wall Street estimates of $5.06 billion. Of this amount, $1.8 billion came from leasing computing power and online storage and $3.3 billion from applications.

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The results were “certainly better than feared,” Jefferies analyst Brent Thiel said in an interview with Bloomberg TV, noting that other cloud vendors such as Amazon and Microsoft have similarly reported strong results recently.

Total sales in the fiscal third quarter rose 7.1% to $13.3 billion, roughly in line with analyst estimates, according to data compiled by Bloomberg. Excluding some items, earnings were $1.41 per share, compared to an average estimate of $1.38.

Sales of Fusion's corporate finance management software rose 18% in the quarter from a year earlier. Revenue from NetSuite, enterprise planning tools targeting small and medium-sized businesses, rose 21%. Both companies' revenues rose 21% in the prior period.

After acquiring Cerner, an electronic health records company, Oracle focused on modernizing its legacy software business. The company finished moving “the majority of Cerner customers” to Oracle's cloud infrastructure this quarter, Chairman Larry Ellison said. More updates over the next year, such as a new suite of applications, will transform Cerner and Oracle's health operations into “high-growth businesses for years to come,” he added.

In the current quarter, which ends in May, revenue will rise about 5%, Katz said. Cloud revenue without Cerner would be about 23%, she said. Cerner will return to revenue growth in the fiscal year ending May 2025, Katz said, adding that it was a “significant headwind” to revenue growth this year.

Katz said capital expenditures will reach $7.5 billion in the current fiscal year. She added that as the company builds more data centers to meet demand for cloud computing, this spending will rise to $10 billion in fiscal year 2025. This is higher than the average analyst estimate of about $8.9 billion.

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(Updates with CEO comment in fifth paragraph.)

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