Drill Down Earnings, Ep. 480: Oracle Q1 earnings – ($ORCL) – A Deep Dive with Cory Johnson

Cory Johnson (0:04)

Welcome to Drill Down Earnings. We have quarterly results out from ORCL. I'm Cory Johnson, Chief Market Strategist from Epistrophy Capital Research's first quarter, 2027 earnings. I'm totally biased. I own the stock, branded the company. You don't believe anything I say, but I do think that this is one of the 50 most important companies in technology. I'm not giving you investment advice, but let me try to convince you that these results matter. You know, of course, we know ORCL is a database software business, but they also are very big in the data center, building and renting business, a business they entered into a few years back and are seeing fantastic results there. I will show you those results so you can see how fantastic, why I think they're fantastic. But it has grown really fast and it's grown so fast, they've borrowed tens of billions of dollars to make it grow even faster. And they're seeing returns in terms of revenue coming into that business. They're not just building buildings that no one's using, they're building buildings for customers. The customers are starting to pay them and they're starting to pay off even with some of the biggest projects like the one in Abilene, Texas, or the Project Jupiter in New Mexico have yet to reach completion. But Q1 earnings, here's what we saw, is better than Wall Street's expectations. They did $19.35 billion in revenues, $1.92 in adjusted earnings per share, both better than Wall Street's estimates. And those are some big numbers here. We look a little bit deeper in the actual business and what was really working for this business. What wasn't? Revenue growth has accelerated. Well, let's back up a minute. Think about what the software company did, you know, four or five years ago. Larry Ellison and then Sapphire Cats, the then CEO, she's since retired, decided to really turn this business, this great software business that they had, this great cloud software business that they had, towards the building of data centers. A very different business, and maybe one that might not have been seen as a core competency of theirs, but they decided to invest in this very, very heavily. They figured that AI was around the corner, and they were going to make a lot of money building these data centers. What's the result? We're seeing great results, and they're still in the early stages of this. But revenue growth is not just there, which is to say the business is growing. It's growing faster than it has been for a very long time. Revenues were up 30% in a year-over-year basis to $19.3 billion in Q1. Cloud revenue, their biggest source of revenue, growing to 62% to $11 billion.

I mentioned their earnings per share are doing quite well. Their operating margins, really, and that's just gross margins here. Their operating margins of 34.8% up from 29% a year ago.

Very strong operating margins. They had some restructuring costs from a year ago or so. Amortization charges also better. That helps their results here. When we look at their overall business, cloud is the biggest part of it, 60%. That's cloud both in terms of cloud software offerings as well as some of the data center business. Software licensing is their second biggest business and support kind of gets attached to that. They've got a hardware business by comparison is small and their services business also smaller here. But their cloud applications grew 10% to $4.2 billion.

Within that, Fusion did well 14%. Industry apps like Oracle Health up 12%.

NetSuite up just 6%, but whatever.

Because that cloud growth is just accelerating. 62% year over year growth in their overall cloud business. Breaking away from all the other growth rates that they've seen that are so positive, with the exception of software support.

But what we see is hardware picking up, services doing fine, but that cloud business, the biggest business they've got getting bigger and bigger. Specifically, within that cloud infrastructure. The building of data centers, OCI, Oracle Cloud Infrastructure, up 112% on a year over year basis, to $7.4 billion, nine quarters in a row of the growth rate accelerating here. Now, they added a lot of data center capacity. They measure these things in terms of how much power it uses, and it was 850 megawatts of power added just in this quarter. They also delivered 300,000 GPUs to their customers. And their data centers are humming. Their customers are getting the keys to these things, and as soon as they get the keys, two things happen. It's off of ORCL's cost basis. The customers are now paying for these services as soon as they get the keys to operate these things. And they're using them in size. 97.9% AI infrastructure utilization.