About Oracle in my books
In my book “The Rules of Super Growth Stocks Investing“:
- Section 2-3
- Section 3-3 provides an in-depth analysis of the company Oracle.
And the book “The Rules of 10 Baggers“:
- Section 1-3
- Section 3-2
Company Profile
Short introduction
In 1977, Lawrence Ellison, Bob Miner, and Ed Oates founded a company called Software Development Laboratories (SDL) in California. In 1978, the first version of the Oracle system (Oracle) written in a combinatorial language was developed. In 1979, the company changed its name to Relational Software, Inc. (RSI). In 1982, the Oracle system was launched and the company was renamed Oracle Systems Corporation.
It made less than one million US dollars in the first year, but it rose rapidly in 10 years, and its market value reached US$190 billion in 2017.
Main product lines
Oracle’s main products are currently divided into the following two categories:
Servers and tools
Main competitors: IBM and Microsoft
- Database server: Oracle 12c
- Application Server: Oracle WebLogic Application Server
- Development tools: Oracle JDeveloper, Oracle Designer, Oracle Developer, etc.
Application software
Main competitor: SAP
- The application software suite and the Oracle Fusion Application launched at the Oracle OpenWorld Conference on September 20, 2010, are a comprehensive modular application suite.
- Enterprise Resource Planning (ERP) software: More than 10 years old. In 2005, the company acquired PeopleSoft Software, which develops enterprise software, to enhance its competitiveness in this area.
- Customer Relationship Management (CRM) software: This software has been developed since 1998. In 2005, it acquired Siebel Software Company (Siebel), which developed customer relationship management software.
- Human Resource Management (HCM): The main product is the acquired PeopleSoft software.
Cloud computing
The past
Oracle (ticker: ORCL), the world’s second largest software company, has experienced stagnant revenue and stock price in recent years. The fundamental reason is that Oracle has not been successful in cloud-based products, and its products have not been able to attract customers. Naturally, they cannot Attract investors’ favor.
Oracle 20 years ago was the second largest software giant on par with Microsoft. What is even more convincing is that the constituent stocks of the new software company added to the Dow Jones Industrial Average Index in August 2020 are the pioneers in the cloud software industry, Salesforce (ticker: CRM), not Oracle.
At present
Investors should keep an eye on the growth of Oracle’s cloud-based services, which accounted for 37% of revenue in its latest quarter. Growth in this high-profile segment, currently driven by OCI (Oracle Cloud Infrastructure) services, NetSuite and Fusion ERP (Enterprise Resource Platform) services, and Cerner’s healthcare cloud services, will need to continue to offset the impact of its slower growth.
Future
Oracle still faces stiff competition from public cloud leaders such as Amazon Web Services (AWS), Microsoft Azure and Alphabet’s Google Cloud Platform (GCP). But on the bright side, the global cloud computing market is still likely to expand at a compound annual growth rate of 17% from 2023 to 2032, according to Precedence Research, so these market leaders may have plenty of room to grow, while They won’t trample on each other.
Well-known customers
Because Oracle started late in cloud computing, it has lost a lot of opportunities. However, OCI (Oracle Cloud Infrastructure) has still acquired some well-known customers, including TikTok, the international version of Douyin, which was forced to be hosted by Oracle in the United States, Musk’s X.ai company, Microsoft, Zoom, McDonald’s, Albertsons, and Humana , Xactly and other famous customers.
Important acquisitions
Cerner
In January 2022, Oracle announced that it would acquire medical digital service provider Cerner for US$28.3 billion. Senna has more than 40 years of experience in digitizing electronic health records, providing digital information systems for hospitals and health systems, and will serve as Oracle’s core asset in the healthcare field. This is the largest merger and acquisition in Oracle’s history.
Netsuite
In July 2019, Oracle will acquire Netsuite for US$9.3 billion. It is a cloud computing company that provides software and services for enterprise financial management, operations and customer relations. Netsuite was launched in 1998 by former Oracle executive Evan Goldberg and Oracle founder Ellison. Ellison already owns 61% of the company.
Aconex
Acquired by Oracle in 2017, Aconex is a leader in SaaS-based construction project management.
Datalogix
Acquired by Oracle in 2014, Datalogix is a well-known manufacturer of data brokerage and digital marketing solutions.
MICROS Systems
Oracle’s $5.3 billion acquisition of MICROS in 2014 allowed Oracle to expand into integrated software and hardware solutions for the hotel and retail industries. MICROS’ main business is to provide enterprise applications for restaurants, hotels, casinos and other entertainment companies.
Acme Packet
Oracle signed a deal in 2013 to acquire Acme Packet for $2.1 billion. Acme Packet produces connection border controllers, secure gateways, and session routing agents that enable secure and reliable communication across devices.
Sun Microsystems
In 2010, Oracle acquired Sun Microsystems, a well-known Silicon Valley manufacturer that also owns computer servers, storage, networks, Java, MySQL databases, software and services, for US$7.4 billion. This was an important merger and acquisition in the history of Oracle one.
Sun helped develop high-performance infrastructure for Oracle Database and the first Oracle Exalogic Elastic Cloud. Sun’s portfolio of personal software development products has expanded under Oracle’s guidance with the release of Oracle Solaris, MySQL and Java.
BEA Systems
In 2008, Oracle acquired BEA Systems, an enterprise applications and WebLogic middleware company, for $8.5 billion. BEA Systems’ three major product lines are the middleware software platform Tuxedo, the enterprise infrastructure platform and the service-oriented architecture platform.
Hyperion
Hyperion, a leader in enterprise performance management, was acquired by Oracle for $3.3 billion in 2007. It provides enterprise resource planning solutions, financial modules and reporting products. The merger of the two companies resulted in Oracle Business Intelligence Enterprise Edition.
Siebel
In 2005, Oracle spent $5.85 billion to acquire its main competitor in the sales automation process industry. Siebel’s customer relationship management system (CRM) provides solutions for more than 20 industries and has been integrated into Oracle’s customer experience product portfolio. This is one of the important mergers and acquisitions in Oracle’s history.
PeopleSoft
PeopleSoft offers a broad range of financial and business applications to meet the business needs of a range of industries. In 2005, Oracle conducted a hostile takeover of PeopleSoft at a cost of US$10.3 billion. PeopleSoft created modules including human capital management, financial management, supplier relationship management, enterprise service automation, supply chain management and PeopleTools, which was one of the most important acquisitions in Oracle’s history.
Performance over the past twenty years
Company strategy
Over the past three decades, Oracle has promoted three major strategies:
- Dominant position in the global database software market.
- Expand its ecosystem through large-scale acquisitions.
- Bad business decisions: including the mistaken bet of trying to replace personal computers with networked computers and missing the big trend of software cloud computing.
This last point has created a serious disconnect between the former second largest software company and the mainstream software market, which has also affected Oracle’s stock price performance in the past two decades.
Operating performance
Oracle’s revenue grew at a compound annual growth rate of just 3% from fiscal 2013 to fiscal 2023, while its continued buybacks helped its adjusted earnings per share (EPS) grow at a compound annual rate of 7%.
Oracle’s revenue grow only 4% in fiscal 2021 (ending May 2021), 5% in fiscal 2022, and 7% in fiscal 2023 (excluding the acquisition of healthcare giant Cerner).
Shareholder rewarding programs
Return to investors
Oracle’s strategies that are beneficial to shareholders make it a rare technology stock that is mature and stable and focuses on shareholder rewarding plans. The company has also been steadily profitable, generated a lot of cash, and continues to buy back its stock.
Oracle repurchase $600 million of stock in the first half of fiscal 2024 while paying $2.2 billion in dividends.
Stock buyback
Oracle is a steadily profitable company that generates large amounts of cash and continues to buy back its stock. Over the past three decades, Oracle has repurchased more than half of its outstanding shares.
Pay dividends
Oracle began paying dividends in 2009, and the current dividend yield is about 1.5%.
Future prospects
Determined by cloud
Much of Oracle’s growth in recent years has been driven by its cloud-based software and infrastructure services, which accounted for 37% of its most recent quarterly revenue. Its cloud growth has slowed due to macro headwinds over the past year, but that has still offset slower expansion in its traditional on-site hardware and software businesses.
From fiscal 2023 to fiscal 2026, analysts estimate Oracle’s revenue will grow at a compound annual growth rate of 9% and its adjusted earnings per share will grow at a compound annual growth rate of 33%. But there are conditions: Oracle must continue to expand cloud services, and the overall economy must gradually return to the level before the epidemic and interest rate increases.
Strong free cash flow
Operating margins also continued to expand as Oracle expands its cloud business, streamlines Cerner’s low-margin business and executes other cost-cutting measures. Its trailing 12-month free cash flow grew 20% year over year to $10.1 billion as of the end of the second quarter of fiscal 2024. Strong cash flow growth allowed it to do stock repurchase and pay dividends.
Attractive valuation
Analysts expect Oracle’s revenue and adjusted earnings per share to grow 8% in 2023. Its shares still appear to be fairly valued at 18 times forward earnings, and its forward yield is a respectable 1.4%. Oracle may not impress growth, value, or income investors anytime soon, but its stability makes it an attractive safe-haven stock.
Oracle’s growth rate is less than impressive, but as long as interest rates remain high in the current tough macro environment, it should remain a better investment.
Conclusion
Since Oracle’s market capitalization is already huge and its revenue figures are among the top in the software industry, if you want to make the stock price rise, unless you find the next product line that drives revenue growth, you will have to rely on the company’s existing product lines for decades. , there is no possibility of any growth in revenue.
But Oracle clings to the two major companies of database and enterprise back-end systems. It has been struggling to survive and has missed the cloud era. Now it is very difficult to catch up. Not to mention artificial intelligence, a new technology trend that is newer than the cloud and requires faster response.
On December 12, 2023, Oracle announced that its third-quarter financial results were not as good as expected. Revenue grew only 5% to US$12.94 billion; the revenue from cloud services and licensing support only grew 12% year-on-year, and the growth rate significantly lagged behind the data of cloud computing vendors such as Amazon, Microsoft and Alphabet. As a result, the stock price fell 12.4% to $100.81 that day, falling to the lowest closing price since October and setting the second largest single-day decline this century.
Related article
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- “Microsoft, the dominant overlord of cloud computing“
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- “How does Salesforce make money? Why is it so successful?“
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