Oracle (ORCL) has played catch-up in the cloud services arena for the past two years, but Larry Ellison keeps acquiring the right company at the right time. In an effort to outpace SAP AG (SAP), Microsoft (MSFT), Salesforce.com (CRM), IBM (IBM) and Hewlett-Packard (HPQ) in cloud-based development in the business enterprise software world, Oracle has made its second acquisition in the past 4 months to enhance Oracle Cloud services.
Oracle Cloud Is Aggressive with Acquisitions Again
One week before the fiscal year ends on May 31, 2012, Oracle acquired a cloud-based social marketing relations company named Vitrue. Vitrue specializes in a social marketing platform that enables companies to organize an effective strategy for social media outlets. Vitrue has a very intriguing list of clients with a global reach, such as McDonald's (MCD), American Express (AXP) and Procter & Gamble (PG), which will increase Oracle's cloud-based product line. Vitrue and Oracle will develop a cohesive social marketing platform that will enable clients to build consistent customer experiences that enhance customer services with consistent branding of a clients product. Another point to look at in this acquisition is the scalability of Vitrue's social marketing platforms that already can advise a client globally or locally as well as position clients with the ability to target specific demography. The acquisition also enhances Oracle's customer service business, which is important for future growth and retention of maintenance revenues.
Oracle versus SAP AG Again!
For decades, Oracle has been in a fierce competition with German business enterprise software maker SAP AG. Earlier in the week, SAP announced its acquisition of Ariba (ARBA) for $4.3 billion in a move that bolsters its cloud-based services and challenges existing Oracle customers to convert over to SAP AG business enterprise products. Richard Williams of Cross Research believes Oracle might make a run on Ariba for its cloud technology, but more importantly to keep existing Oracle customers. The same day as the acquisition of Ariba, law firm Levi & Korsinsky LLP announced an investigation into the Board of Directors' fiduciary responsibilities to shareholders for not pursuing other bidders in order to maximize shareholder value. Look for a bid from Oracle for Ariba in the near future. Oracle has deep pockets and $30 billion in the bank. It would not be the first time these two companies went head-to-head in an acquisition battle. After all in 2005, Oracle did have more cash on the table when it outbid SAP AG for Retek.
Both Oracle and SAP AG have been aggressive in acquiring cloud-based technology companies over the past year to increase their Software as a Service divisions (better known as SaaS). SaaS is essential for both companies to grow revenues in the future. SAP AG has acquired a competitive list of companies over the past few years including cloud-based companies like TomorrowNow, SuccessFactors, and currently Ariba. Oracle has a long list of acquisitions and has bought two cloud-based companies in less than 4 months, Taleo and Vitrue.
There is also competition in the SaaS cloud-based arena from IBM, Salesforce.com, Hewlett-Packard and Microsoft. IBM, Microsoft and Oracle have money in the bank to continue acquisitions and increase revenues through integration of new cloud-based technologies. In addition, there are cloud-based technologies that Salesforce.com and Hewlett-Packard possess which would make the two companies an attractive purchase, at the right price.
I believe you should be a buyer of Oracle before fiscal year end (May 31, 2012) numbers are released. I believe Oracle is in a good position to capitalize on its cloud-based services in the near and long-term future. The acquisitions of Vitrue and Taleo have given Oracle an edge with scalability and international growth in two different areas of cloud-based services; social media and human resources. Oracle also is believed to be producing results from cloud-based services with high efficiency. Even with over $2 billion spent on cloud-based acquisitions so far this year, Oracle still has $30 billion in the bank and can accelerate the cloud-based race for SaaS revenue growth and market share.
In addition, Larry Ellison and Mark Hurd are scheduled to speak on June 6, 2012 on Oracle's of Oracle Cloud development. The event will outline the future of cloud-based services moving forward and the event is bound to include insight on new growth in revenue from cloud-based services.
Currently, I believe Oracle is undervalued at $26 per share because of general market conditions and the recent court verdict with regard to Google (GOOG) infringing on Java API patents. U.S. District Judge William Alsup ruled in Google's favor, but the trial continues and will enter a new phase in which Oracle will argue that Google infringed on copyright material related to Java API technology. Analysts had probably built-in some type of settlement into future revenue and earnings, but I don't think the verdict means the demise of Oracle or lower earnings in the future.
And I have not forgotten about the $1.3 billion in damages owed to Oracle by TomorrowNow, a company acquired by SAP AG in 2005. SAP AG has acknowledged responsibility for TomorrowNow's actions and disputed the jury award in 2011, forcing a settlement or new trial. Oracle has decided to schedule a retrial with regard to damages and the new trial is slated to begin again in June 2012. Originally, the jury awarded Oracle $1.3 billion in damages based on TomorrowNow's infringement on Oracle copyrights. The judgment was later reduced to $272 million when U.S. District Judge Phyllis Hamilton believed that figure was all the monetary damages Oracle sufficiently proved to have suffered. The trial could hamper SAP AG in future acquisitions as well as its future growth strategy. Sure, $272 million is not a fortune in cash, but anytime you can take a bite out of an 800 pound gorilla, which is a competitor, it is a good bite.
I recommend buying Oracle because it is a growth machine that keeps churning away with the competitive spirit of Larry Ellison at every turn. Oracle beat expectations in February 2012 by 10% and increased the dividend per share as well. I think good news will be forthcoming for Oracle and not SAP AG in its continued rivalry- which appears to be just warming up again.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.