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Oracle falls more than 8% on mixed earnings results, weak guidance

  • Oracle beat on earnings but came just below expectations for revenue.
  • The company took a $6.9 billion charge because of tax reform.

Oracle stock fell as much as 4 percent on Monday immediately after the company released mixed results for the third quarter of its 2018 fiscal year, which ended on February 28. The stock tumbled lower after executives issued guidance.

* Earnings: Excluding certain items, 83 cents per share vs. 72 cents expected by analysts, according to Thomson Reuters.

* Revenue: $9.77 billion vs. $9.78 billion expected by analysts, according to Thomson Reuters.

In terms of guidance, CEO Safra Catz told analysts on the earnings call that she expects Oracle to report 92-95 cents per share, excluding certain items, and 1-3 percent revenue growth in Oracle's fiscal fourth quarter. Analysts were expecting 90 cents per share on $11.22 billion in revenue in the quarter, according to Thomson Reuters.

Catz said she was looking for 19-23 percent growth in cloud revenue -- for cloud software, platform and infrastructure -- for the third quarter, while analysts were looking for 24.3 percent cloud growth for the fiscal fourth quarter, KeyBanc analysts led by Monica Garg mentioned in a Sunday note.

The stock fell further in premarket trading Tuesday, trading more than 8 percent below closing price, on the back of the guidance.

Oracle's overall revenue increased by 6 percent year over year in the quarter, according to Monday's earnings report.

The company had a $6.9 billion one-time charge because of tax reform, with a 16.1 percent tax rate, excluding certain items, for the quarter. That's down from 21.6 percent one year ago. The KeyBanc analysts said they thought Oracle could see gains in free cash flow and earnings per share -- 4 cents per share for every 1 percent decline in its tax rate -- as a result of the tax reform. On Monday's call Catz said she expects a 19.5 percent tax rate for Oracle's 2019 fiscal year.

While on-premises revenue of $6.42 billion grew by 4 percent, it made up 66 percent of Oracle's total revenue. Oracle had $1.39 billion in new software license revenue, down 2 percent, and it represented 14 percent of all revenue for the company in the quarter. Analysts polled by FactSet had expected $1.42 billion in new software license revenue in the quarter, according to StreetAccount.

As Oracle decreases its dependency on software sales for corporate data centers, it has focused more on delivering cloud-based services to customers, and in the third quarter cloud software revenue of $1.15 billion was up 33 percent. Analysts polled by FactSet had expected $1.18 billion in revenue from cloud software in the quarter, according to StreetAccount.

Cloud platform as a service and cloud infrastructure as a service revenue came in at $415 million, which equates to 28 percent growth. Analysts polled by FactSet had expected $407 million in cloud infrastructure and platform revenue, according to StreetAccount. Market-leading cloud infrastructure provider Amazon Web Services had $5.11 billion in revenue, with 45 percent revenue growth, in its most recent quarter.

"We have moved the entire company to SaaS," said CEO Mark Hurd, using the acronym for software as a service.

Oracle stock is up 10 percent since the beginning of the year. In the fiscal third quarter Oracle announced a data center infrastructure expansion and acquisitions of Aconex and Zenedge.