Eddy Elfenbein submits: Oracle (ORCL) reported its earnings after Thursday’s close. Let’s start with the good news. No one was seriously injured or maimed. That’s not always a given when your CEO owns his own jet fighter.
The bad news is that Oracle’s profits skidded 2%. All told, the company netted 15 cents a share but charges for its acquisition binge shaved off four cents a share.
At this price, I think Oracle’s stock is a bit cheap but I’m not a buyer. No way. The company faces several major problems. Obviously, the most important is that its core business simply isn’t growing that fast. Last quarter, database license sales grow by just 5%. I’m sorry but that’s pretty dismal. That stock has been stuck in neutral for the last few years and I’m not sure things will get better any time soon.
The thing about Oracle is that it’s still overwhelmingly a database stock. If anything, the database market has become even more competitive. You have Microsoft and IBM closing in. I’ll give Larry & Crew credit for realizing the trouble they’re in. They understand that something must be done, and quick. Hence, the acquisition boom. Let’s just say that Oracle has made a lot of investment bankers happy this year. And it’s not just Siebel and PeopleSoft. Oracle has spent $16 billion this year on over a dozen acquisitions. That’s almost as much as Steinbrenner.
But it’s the buying spree that makes me nervous. The three most terrifying words on Wall Street are growth, acquisition and buy. At the high-end of enterprise software, there’s nobody left. It’s just SAP and Oracle—that’s it. Look at what happened to Siebel earlier this year. It’s almost as if Larry saw the ghost of Christmas Future. The Siebel board fired their CEO after less than a year, and was able to get Oracle to take the bait for a buyout. OK, even I’m not that cynical, but still... it happened.
The shareholders want action. If Oracle’s stock continues to go nowhere, Larry may need his fighter for self-defense. (Although I’m partial to the idea of Redwood being declared a no-fly zone.) If not air or land, there’s always the sea. Ellison also owns the world second-largest yacht, a 450-footer. I’m guessing that’s a par three.
Don’t get me wrong. I love Larry. He’s a genius. If anybody can pull off a swarm of blockbuster deals, he can. I’d love to be his wingman (or first mate), but Oracle has to start putting up better numbers. Then it’ll be worth a serious look.
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