Last Thursday, Oracle (ORCL) announced that it is going to acquire Eloqua (ELOQ) for $871 million in cash. This was a continuation of the series of acquisitions to establish Oracle's presence in the cloud computing field. In direct competition with IBM, Salesforce and SAP AG, this will probably not be the last acquisition either.
Eloqua, based in Vienna, Virginia, makes products that help companies tailor and measure the effectiveness of sales and marketing projects, especially e-mail marketing campaigns, ranging in price from $2,000 a month for four to 10 users, to $6,400 a month for 250 users. This is supposed to be an addition to the marketing cloud application product line.
"Modern marketing practices are driving revenue growth and is a critical area of investment for companies today," said Thomas Kurian, Executive Vice President, Oracle Development. "Eloqua's leading marketing automation cloud will become the centerpiece of the Oracle Marketing Cloud and is an important addition to the Oracle Customer Experience offering, which includes the Oracle Sales Cloud, Oracle Commerce Cloud, Oracle Service Cloud, Oracle Content Cloud and Oracle Social Cloud."
In April, Oracle bought Taleo, a producer of online human resource management software, for $1.9 billion, and RightNow Technologies, a manufacturer of customer support management software, for $1.5 billion before that in January.
This Eloqua acquisition takes place right after IBM (IBM) acquired Kenexa, maker of cloud-based recruiting and talent management software, for $1.3 billion in cash last week, along with the announcement of acquisition agreement with StoredIQ on 19th December this year. Even SAP (SAP) is not lagging behind after acquiring SuccessFactors for $3.4 billion in February this year and Ariba, Inc. for $4.3 billion in October this year.
Cloud computing is the next big thing and the IT biggies are racking up their assets as fast as they could. And for that, they are paying higher than they should. Oracle paid Eloqua 31% higher than the closing price yesterday, which turns out to be over nine times sales revenue in the last twelve months. What about others? SAP acquired SuccessFactors for $40 per share, a 52% premium over the acquired company's closing price of $26.25 on December 2nd. IBM bought Kenexa at 42% premium to the acquired company's closing price last week. Pretty much seems to be an auction (can also read as "action") market right now!
Moreover, this marketing automation cloud addition is another hit to the top business contender, Salesforce (CRM), who still seems to have a stronger winning rate against Oracle. If Oracle is to compete with Salesforce, it has to take all these acquisitions together and make them work in synergy with one another to provide the ultimate solution to the B2B clients.
But, is all this spending worth it? How are they affecting the financials, which actually matter the most?
Into the Financials
As per the last quarterly fiscal Q2FY2013 results, total revenues were up by 3% to $9.1 billion. New software licenses and cloud software subscriptions revenues were up by 17% to $2.4 billion. Software license updates and product support revenues were up 7% to $4.3 billion. Hardware systems products revenues were $734 million. Operating income was up 12% to $3.5 billion, and Operating margin was 38%.
This is an excerpt from the press release:
"Q2 performance was strong and broad based as all geographies reported double-digit revenue growth in new software license and cloud subscriptions," said Oracle President, Mark Hurd. "Applications, middleware and database all had double-digit growth in new software license and cloud subscriptions, with applications leading the pack with growth of over 30%. Our cloud offering of HCM, CRM and ERP applications plus the Oracle database and Java platform services is the strongest and most complete in the industry. Already approaching a one billion dollar run rate, our Cloud business will become much bigger over time."
Perhaps, that's the reason why Oracle seems to be so aggressive during these acquisitions. It has a plan up its sleeve, and that will probably show in the income statement in the coming few quarters.
Apart from that, with a cash balance of $33.70 billion and an annual current ratio of 2.60, compared with 1.21 of IBM and 1.54 of SAP, Oracle seems to be in a better position to make these purchases. And it is worth noting that shareholder's equity has surged to $43.41 billion in August, 2012 from $20.82 billion in February 2008. So, Oracle is definitely defending shareholders' interests as well.
As Oracle's recent research report, "Why Customer Satisfaction is No Longer Good Enough," reveals that 81% of consumers surveyed are willing to pay more for superior customer experience, with nearly half (44%) willing to pay a premium of more than 5%. And that's where the new-age fast cloud computing social business and data analytics expertise comes in.
Oracle is doing just fine with these new acquisitions. Needless to say, this will spur some more acquisitions by Salesforce, IBM or SAP in the coming few quarters. As was the case in May 2010, when Oracle acquired then-Eloqua rival Marke2Lead, followed by the acquisition of Coremetrics and Unica by IBM a few months later.
The IT industry has always been active and interesting from an investor's point of view, and there's more to come. Stay tuned!
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Additional disclosure: Investing is subject to market risks. Think before you act.