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Oracle (NYSE:ORCL), which competes with SAP (NYSE:SAP), Microsoft (NASDAQ:MSFT) and Salesforce.com (NYSE:CRM) in the applications software market, recently announced its Q4 of 2010 earnings. Oracle’s applications revenue grew by 5% compared to the same period a year ago, while SAP saw a negative 24% revenue growth.

We believe that Oracle has started to take away SAP’s market share. Oracle’s past acquisitions have started to produce results, while SAP is losing ground due to over reliance on organic growth.

Applications Software 25% of Oracle’s Stock

We estimate that Applications Software constitutes 25% of $35 Trefis price estimate for Oracle’s stock. Applications software includes applications used by enterprises to increase sales and to reduce costs. The main applications suit for Oracle include:

1. Customer Relationship Management (CRM): This application is used for maintaining customer-related information in order to improve customer service and target marketing efficiently and correctly.

2. The Business Process Outsourcing application: This software is used for outsourcing non-core business processes such as payroll and HR administration.

3. The Business Intelligence application: This is used by companies for identifying cost-cutting areas and growth opportunities

4. Enterprise Resource Planning (ERP): This application integrates data and processes of an organization into one single system.

We believe that Oracle will continue to increase its applications software revenues.

Oracle vs. SAP

Below we discuss why Oracle is showing such healthy growth compared to SAP.

1. Oracle’s past acquisitions are producing results

Oracle is known to be an aggressive player in identifying acquisitions. Oracle’s applications software business has grown through a number of past acquisitions, such as PeopleSoft, Agile Software, Siebel Systems, i-flex, etc. With all major deals starting to pay off, Oracle has gained presence in almost all major verticals of application software.

2. SAP relied mainly on organic growth in the past

SAP has historically relied on organic growth, with the only exception being the BusinessObjects acquisition. Though SAP did acquire Sybase recently, it is yet to be seen how well SAP leverages Sybase to counter Oracle. In another article, we discussed what SAP can do to leverage Sybase and benefit its applications market share.

We estimate that ERP and CRM are the most valuable businesses for SAP and constitutes around 55% of $50 Trefis price estimate for SAP’s stock. We believe that SAP will continue to lose share in both these markets.

We have already factored-in Oracle’s revenue growth in its application software business and SAP’s market share decline in the applications market.

By modifying the charts above you can see how SAP’s stock loses about 2% of value for every 1% decline in its ERP and CRM market share.

Disclosure: No positions

Source: Oracle's Acquisitive Nature Starts to Hurt Rival SAP