Why Oracle Stock Is Plummeting Today

Oracle (NYSE: ORCL) stock is seeing big sell-offs in Tuesday's trading. The company's share price was down 12% as of 2:15 p.m. ET, according to data from S&P Global Market Intelligence.

Oracle published mixed results for the second quarter of its current fiscal year, which ended Nov. 30, after the market closed yesterday. The company posted non-GAAP (adjusted) earnings per share of $1.34 on revenue of $12.94 billion. While the company's profit beat the average analyst estimate's call for per-share earnings of $1.33, sales in the period missed Wall Street's target by $110 million.

Wall Street doesn't like what it see
Oracle's revenue climbed roughly 5% year over year in the second quarter of the current fiscal year, and adjusted earnings per share rose roughly 11%. While the company's top- and bottom-line growth look solid enough at first glance, a closer look at the performance suggests that the tech giant isn't keeping pace in key categories.

Oracle's cloud services and license support revenue rose just 12% year over year in the quarter to reach $9.6 billion. This level of growth lags significantly behind what top cloud players including Amazon, Microsoft, and Alphabet are posting. Right now, Wall Street is worried that Oracle will not be able to catch up.

On the other hand, Oracle management says that demand for cloud infrastructure and generative services is growing at an impressive rate and this tailwind will boost sales further down the line. Remaining performance obligations, a metric that tracks services that have been contracted for but not yet delivered and realized as revenue, stood at more than $65 billion at the end of the quarter. Excluding its Cerner healthcare division, remaining performance obligations were up 11% on an annual basis.

What comes next for Oracle?

Oracle expects its revenue to grow between 6% and 8% in its fiscal third quarter. Excluding contributions from the Cerner healthcare division, revenue is projected to grow between 8% and 10%. Meanwhile, cloud-based revenue is projected to grow between 26% and 28% year over year, excluding the Cerner division. Overall adjusted earnings per share are projected to come in between $1.35 and $1.39 in the period, suggesting annual growth of roughly 13% at the midpoint of the target.

Even with a substantial valuation pullback today, Oracle stock is still up roughly 24% year to date. The stock is currently trading at roughly 18 times this year's expected earnings and about 16 times next year's expected profits.

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