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Oracle Stock Slides As Q3 Profit Miss Offsets Solid Cloud-Driven Outlook

Oracle shares have yet to break out of a six-month slump despite upbeat forecasts for cloud and services growth and its $28.3 billion acquisition of medical software group Cerner.

Oracle  (ORCL)  shares moved lower in pre-market trading after the cloud-focused software group posted weaker-than-expected third quarter earnings that were offset by a solid near-term outlook.

Oracle, which earns the bulk of its revenues from its cloud services and license support unit, missed Street earnings forecasts by 5 cents with an adjusted second bottom line of $1.13 per share, thanks in part to an 8% jump in operating expenses as it invested in new cloud and hybrid offerings.

Organic revenue growth in application subscription products was 10%, at $3.2 billion, while overall organic revenues were up 7%, the strongest in ten years, Oracle said.

The group will spend another $4 billion this year as it rolls out new data centers to meet customer demand, but sees sales growing at 6% to 8% clip and forecasts a fourth quarter bottom line of between $1.40 and $1.44 per share.

"We're really still in the early days," of a boom in customer demand for cloud transitions and services, chairman Larry Ellision told investors on a conference call late Thursday. "It's just getting faster. I mean, the growth --our growth is accelerating, accelerating, accelerating. You look at our growth rate, it's not going down."

Oracle shares were marked 2.5% lower in pre-market trading to indicate an opening bell price of $74.75 each, a move that extends the stock's six-month decline to around 16%.

Cloud division revenues topped $2.8 billion as companies continue to spend on post-pandemic hybrid work solutions, while overall revenues grew by 4% to $10.5 billon, while profit margins in the cloud unit were pegged at 84%, a tally that was essentially flat to the prior quarter.

"The standout this quarter was management’s guidance for revenue growth accelerating into the double digits next year (excluding its $28 billion purchase of medical software group Cerner late last year)," said Credit Suisse analyst Phil Winslow, who carries a $115 price target with an 'outperform' rating on the stock. 

"We believe 2022 will be defined by businesses moving forward on multi-year, strategic cloud-first transformation roadmaps and expect Oracle to be a key beneficiary of this accelerating trend given its leadership in the database market," he added.

Oracle agreed in late December to pay $95 a share, in cash, for the Kansas City, Missouri-based Cerner  (CERN) , the second-largest designer of software used by doctors and hospitals to mange and store medical records. 

The deal was the biggest in Oracle's corporate history at just under 3 times the size of its $10 billion purchase of PeopleSoft in 2005.