Oracle (ORCL), one of the largest software companies in the world today, is definitely on a roll, with new acquisitions and new technologies for cloud computing coming out, as well as details on what to anticipate from the company a little later this month for its end of year results. Oracle, which is almost 35 years old, has left its mark in the market with total yearly revenue of approximately $37 billion and a market value of $137 billion. In this article, I will explain why Oracle's most recent announcements could make it a strong addition to your portfolio.
Oracle recently announced the release of "the most comprehensive Cloud on planet Earth", which includes databases and tools to build apps using Java ad analytics programs, all of which run on computers outside a corporation's own network. Hoping to compete with Amazon (AMZN) and Salesforce.com (CRM), the company has been generating excitement since November of last year. CEO Larry Ellison recently announced that the company will be distributing over 100 business software applications over the Internet, rather than users having to download and install them on each individual office computer. This is definitely convenient, and has the potential to send Oracle's revenue soaring once it takes off.
However, most analysts don't anticipate Oracle's cloud taking off instantly, but it will definitely have long-term effects on the company. I think that releasing this cloud is a positive for the company, and one that will have an impact on the applications sector over the next couple of years. Growth in the applications sector has seen better days, with a 2% decline in the second quarter of 2012, having only increased 3% during the fourth quarter of last year, which slowed down the growth of SAAS vendors significantly. I certainly am of the opinion that the "underperformances" these companies are experiencing can be a result of a number of things, including competitive loss and a weakening macroeconomic environment. There has also been a slow growth period in Oracle's app market since the company introduced its next generation platform, Fusion Applications, last October.
At one point, the idea of cloud computing itself was one that Ellison had mocked, but he's finally come around to realizing that if you want to stay ahead of the times, there are some technologies you have to get behind. Now that the company is launching the new Cloud in a $1.6 billion collaboration with RightNow Technologies (RNOW) and Taleo, it means that more customers are going to be deploying Fusion Apps in the cloud. This translates into increased enterprise software usage, since these technologies not only cost less, but are easier to maintain as well. At the very least, the GA of the Oracle Cloud should help the company keep its customers happy, since they now have the choice to run Oracle Apps on a SAAS, on premises, or hybrid model.
Other, less optimistic analysts are saying that this announcement by Oracle (finally tapping into the cloud) is just a defensive move that investors should be wary of. If it was the only big move Oracle was making, I might agree. As it stands, however, cloud computing gives the company the option to lease its business software and share it over the Internet.
According to IDC, revenue from server sales was down approximately 12% from last year in the Mid-East and Africa region. Despite this, Oracle managed to come out positively. Total revenue reached $3.1 billion, compared to $3.5 billion during the same quarter last year. Total shipment sales was down 3.8%, and while [[HP]] managed to snatch away the top spot from IBM, capturing 38.2% of the market, its sales were still down a 19.1%. IBM didn't do any better in sales, with a 17% decline, capturing only 26.3% of the market. Oracle and Fujitsu, on the other hand, enjoyed market growth of 0.5% and 0.2%, respectively, despite the general decline amongst top players of the industry.
Oracle still has a lot of proving to do in order to show the world that it is flexible and can indeed adapt to changes brought on by the cloud. At the same time, it still has to maintain its profit levels with its old model and maintain its software to keep corporate and government customers happy. It is not an easy job, but one that Oracle is confident it can achieve.
With Oracle's plans to expand into cloud computing, Ellison will be in direct contact with old rival David Duffield, from whom he bought PeopleSoft in 2005 for a whopping $11.1 billion. Since the acquisition, Duffield has started his own cloud-computing project, called Workday, that sells HR management tools. Oracle was quick to announce that its cloud-computing service will be a bigger success than both PeopleSoft and Workday, by offering a wider range of products and services. Some of Oracle's new services include a social management tool that allows users to analyze what people are saying on various social networks like Facebook and Twitter.
In another move to get investors feeling more confident about buying the stock, Oracle announced that it will be spending $10 billion buying back its stock, compared to the $6 billion it spent buying 207 million shares back last year. $10 billion represents about 370 million shares, or 7% of the company's 5 billion outstanding shares. This move will certainly improve the company's per share earnings.
While revenue may have only jumped 1% from last year's $10.9 billion, which is already higher than analysts had predicted, Oracle stated that it would have risen more than 5% if not for the weak U.S. dollar, which affected the company's overseas performance. Moreover, had enhance rates stayed the same as last year, the company's software licensing revenue would have seen an 11% increase.
With most European stocks on the decline, the fact that Oracle managed to beat target figures definitely surprised analysts and pleased investors, proving to the rest of the world that it's back on track to lead the rat race. Based on the reasons above, I urge investors to consider buying Oracle today.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.