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The price of Oracle stock has kept declining in the past few days following the pronounced 10% single-day jump that shares experienced on 14 June following the release of the firm’s financial results covering the fourth quarter of the 2022 fiscal year.

On 17 June, TikTok, the popular social media platform owned by ByteDance, informed the public that it partnered with Oracle to migrate all the data from users within the United States. According to the company, 100% of the traffic coming from US-based users will now be routed to Oracle’s Cloud Infrastructure.

ByteDance said that they expect to delete all the data they had stored from US users at their Virginia facility as part of an effort to assure regulators within the country that such data is safe.

The company stated that it has built a team comprised of US-based personnel that will be in charge of managing data from US-based users. The goal of this team is to minimize data transfers outside of the US.

“These are critical steps, but there is more we can do. We know we are among the most scrutinized platforms from a security standpoint, and we aim to remove any doubt about the security of US user data”, the company stated.

Back in March 2022, TikTok‘s parent company faced mounting pressure from US regulators concerning the security of its user data as reports pointed to China’s communist government gaining access to the servers to monitor users’ activities within the country.

Oracle’s initial intention was to buy a stake at ByteDance but the deal ultimately ended in the company partnering with the social media platform to strengthen the security of its data.

Oracle Posted Strong Cloud Revenue Growth in Q4 2022

oracle price chart
Oracle Corporation (ORCL) price chart – Source: TradingView

On June 13, Oracle reported its financial results covering the fourth quarter of the 2022 fiscal year. Revenues during the three months ended on 31 May landed at $11.84 billion resulting in a 10% jump on a constant currency basis.

Cloud revenues were the engine behind the company’s top-line growth during the quarter as they rose by 22% in constant currency to $2.9 billion. Meanwhile, the firm’s operating margin experienced a decline of 200 basis points at 38% as research and development expenses rose as a percentage of revenue compared to Q4 2021.

Also read: Adobe Stock Slides Despite Decent Q2 2022 Earnings Report

As a result, Oracle’s net income dropped 14% on a constant currency basis to $3.19 billion resulting in GAAP fully diluted earnings per share of $1.16. Meanwhile, the firm’s adjusted EPS stood at $1.54 per share. This figure exceeded analysts’ consensus estimate for the period by 16 cents.

Oracle’s balance sheet remains highly leveraged as the firm’s borrowings are standing at $72.11 billion on total assets of $109.3 billion including liquid reserves of $21.9 billion. By the end of this fourth quarter, the company also reported negative stockholder’s equity of $5.77 billion.

Is Oracle’s High Debt a Risk Amid the Latest Market Downturn?

During the fourth quarter of 2022, Oracle managed to produce positive free cash flows of $5.03 billion. In total, during the entire fiscal year, the firm produced positive FCFs of $31.3 billion.

According to the latest annual report from 2021, Oracle will be paying around $8.25 billion in principal payments and another $3.75 billion in 2023. Based on the firm’s current cash flow generation capacity and liquid reserves, Oracle appears to have enough funds to meet its financial obligations.

Therefore, despite the company having negative equity at the moment, solvency risks remain relatively low.

On 21 December 2021, Fitch Ratings put Oracle on Rating Watch Negative (RWN) after the company acquired Cerner Corporation in an all-cash deal that valued the firm at $28.3 billion.

Currently, Oracle’s debt is rated BBB+, which indicates “good credit quality”. According to Fitch’s official website, this rating indicates “that expectations of default risk are currently low. The capacity for payment of financial commitments is considered adequate, but adverse business or economic conditions are more likely to impair this capacity”.

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