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Why Oracle Stock Soared Today

By Joe Tenebruso – Dec 10, 2021 at 2:27PM

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Accelerating cloud growth is fueling handsome returns to investors.

What happened

Shares of Oracle (ORCL 0.26%) surged on Friday after the technology titan reported strong fiscal 2022 second-quarter results. 

As of 1:50 p.m. ET, Oracle's stock price was up more than 15%. 

So what

Oracle's revenue rose 6% year over year to $10.4 billion in the period ended Nov. 30. The gains were driven by a 6% rise in cloud services and license support revenue, to $7.6 billion, and a 13% jump in cloud license and on-premise license revenue, to $1.2 billion.

Notably, sales growth in Oracle's infrastructure and applications cloud businesses checked in at an impressive 22%. The business software leader's total cloud revenue is on track to generate more than $10 billion during the year.

A person is holding and looking at a cloud-shaped object.

Image source: Getty Images.

Oracle's enterprise resource planning (ERP) and next-generation cloud infrastructure solutions are enjoying particularly strong demand. "We now have 8,500 Fusion ERP customers with revenue growing 35%, 28,400 NetSuite ERP customers with revenue growing 29%, and our Gen2 infrastructure businesses are growing even faster -- and accelerating," CEO Safra Catz said in a press release.

Though Oracle's operating profits were dented by litigation charges related to an employment dispute involving its previous CEO, its adjusted operating income increased 6% to $4.9 billion. And its adjusted earnings per share, which were boosted by stock buybacks, climbed 14% to $1.21.

Now what

Management expects Oracle's revenue to grow by roughly 7% in constant currency in the third quarter, fueled by further expansion in its cloud businesses. Catz also noted during a conference call with analysts that Oracle's shift to cloud-based software should bolster its profit margins.

"Cloud is fundamentally a more profitable business compared to on-premise, and I expect that our operating margins this year will be the same or better than pre-pandemic levels of 44%," Catz said. 

Better still, Catz's confidence in Oracle's improving profitability and already strong free cash flow production prompted the company to ramp its capital returns to shareholders. The tech giant increased its share repurchase program by a hefty $10 billion. 

Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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