Oracle Remains a Fiscal Train Wreck
The software firm is still uninvestable after earnings.
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OK, Oracle (ORCL) released the firm’s fiscal first quarter financial results on Thursday evening. The kid most famous for bashing the poor quality of that firm’s balance sheet and calling the sell-off that hit that stock from late 2025 into 2026 will take a look into what Oracle reported. Let’s get started, shall we?
For the period ended August 31, Oracle posted an adjusted EPS of $1.92 (GAAP EPS: $1.56) on revenue of $19.345 billion. Those top- and bottom-line results (adjusted or not) all easily beat Wall Street’s expectations. The top line number itself was good for year over year growth of 29.7%, which is impressive.
During the call, CFO Hilary Maxson said, “Q1 was another record quarter, driven by strength in both our cloud infrastructure and cloud apps businesses.”
She added, “For the first time, Q1 total revenue grew sequentially, an important sign of our continued progress in building scaled infrastructure.”
Still during the call, co-CEO Clay Magouyrk boasted, “We closed more than $30 billion of additional AI contracts in Q1 without requiring additional capital from Oracle.”
Co-CEO Mike Scilia pointed to the future: “At AI World in October, we will unveil a new agentic AI accelerator poised to redefine how customers deploy Oracle applications faster, simpler and at a dramatically lower cost.”
So, let’s look at operations.
Operations
As sales increased 29.7% to $19.345 billion, total GAAP operating expenses grew 18% to $12.617 billion, leaving a GAAP operating income of $6.728 billion (+57%). After adjustments mostly for stock-based compensation, but also for the amortization of intangibles, operating income becomes $8.151 billion (+31%). Why a company that went public in 1986 is still adjusted for stock-based compensation is beyond me. If you have an expense that you account for every quarter for 40 years, that’s called an ordinary operating expense. You are fooling nobody.
After accounting for interest, other income and expenses and taxes, GAAP net income printed at $4.679 billion (+60%). This works out to $1.56 per fully diluted share (up from $1.01). After adjustments, net income showed growth of 34% and EPS worked out to $1.92, up from $1.47 for the year-ago comparison.
Business Unit Sales Performance
Cloud generated revenue of $7.186 billion (+28%:
- Cloud Applications generated revenue of $3.839 billion (+11%)
- Cloud Infrastructure generated revenue of $3.347 billion (+55%)
Software generated revenue of $5.721 billion (-1%):
- Software License generated revenue of $766 million (-12%)
- Software Support generated revenue of $4.955 billion (+1%)
Hardware generated revenue of $670 million (+2%)
Services generated revenue of $1.349 billion (+7%)
Guidance
For the current quarter, Oracle sees revenue growth of 30% to 34%. Wall Street was looking for something around 21% to 22%. That’s a big beat. Adjusted EPS is projected at $1.85 to $1.93. Wall Street was looking for $1.89, so this is not a beat.
For the full year, the firm sees revenue of more than $90 billion. Wall Street was looking for something around $89.4 billion. That’s a modest beat. Adjusted EPS is projected at roughly $8.10. Wall Street was looking for $8.06, so that’s another modest beat.
Fundamentals
Are things improving here? Hmmm…
For the quarter reported, Oracle drove operating cash flow of $23.103 billion. Out of that number came capex spending of $28.499 billion, leaving “free” cash flow of -$5.396 billion. That number compares to -$362 million for the year-ago comp and to -$1.873 billion for the previous quarter, so “no.” The firm still paid out $1.565 billion in cash dividends to shareholders. Oracle remains a fiscal train wreck.
Moving on to the balance sheet, Oracle ended the period with a cash position of $37.077 billion, so it can’t burn $5 billion a quarter forever, not without further blowing up an already uncomfortable debt load. Current assets add up to $55.63 billion. Current liabilities amount to $47.514 billion, including $14.686 billion in deferred revenues, but also $7.625 billion in short-term debt. This leaves the firm’s current ratio at 1.17. Adjusted for deferred revenues, that ratio rises to 1.69. That portion of the balance sheet does get a passing grade, but like a C+, nothing to brag about. That said, this is an improvement.
Total assets ended the period at $303.259 billion, of which about 20% is intangible. Total liabilities less equity comes to $236.063 billion. That includes a whopping $117.712 billion in long-term debt. That is down $5 billion from May, but the short-term debt is up $3 billion, so we’re not throwing any parades.
Point To Make
There is no non-current deferred revenue on the books. This is why I do not mention up top the $664 billion (up $209 billion) in Remaining Performance Obligation. If you have $664 billion in obligation, how in the world do you only have $14 billion in deferred revenue on the balance sheet? Simple. This larger number is mostly invoices issued and not yet collected on or more likely dollar amounts that will someday in the future be invoiced. These could be very distant contracts. They could be for use of capacity that Oracle does not even possess yet. Long story short, you can count on deferred revenues. Remaining Performance Obligation? Sounds a lot less reliable.
Opinion
Oracle is beating expectations. That’s great. Guidance is solid. That’s good. Cash flows are worse than awful. That’s bad. The balance sheet is not one of the worst I’ve ever seen when the current situation is looked at. Long-term, it’s still pretty bad even if it is improving ever so slightly. This is a ship that had better get its act together. Fundamentally speaking, ORCL is still pretty close to uninvestable.
Technically, with ORCL now down 55.6% over 12 months, one would think that there might be room for a rally. Despite close to horrific fundamentals, the sock has developed a cup-with-handle pattern of bullish reversal coming out of that head-and-shoulders pattern of bearish reversal. The upside pivot for the pattern stands at $170. The 200-day SMA, where the stock was rejected earlier today, stands at $167.
That’s where the professionals are. Friday’s price action implies that the pros are still selling strength in ORCL whenever they see it. I could not buy this stock unless I saw that red line taken and held. On the flipside, should ORCL fail to hold the 50-day line at $141, this thing could get ugly. Again.
At the time of publication, Guilfoyle had no positions in any securities mentioned.
