About Oracle
Oracle: a company with a lot of useful applications as well as a lot of data.
So what if that’s probably not the company’s slogan? It’s a solid summation of the way that we see the company.
While many other global technology companies and leaders pride themselves on all of the data and information they collect, attempt to make sense of and possibly sell to a third party, Oracle is a serious technology and data conglomerate that is often overlooked by the pundits of Wall Street.
What started as a humble software company founded by legendary technology entrepreneur, Larry Ellison, has since morphed into one of the largest data-specialized software management companies in the world.
For those who aren’t glued to the tech industry and aren’t as familiar with what Oracle does, it might help if we listed some of the company’s acquired subsidiaries over the years, each having helped grow the company’s footprint in the data management and Cloud spaces.
To name some of the company’s larger subsidiaries, Oracle purchased communications security giant Acme Packet in 2013 for $2.1 billion, BEA Systems in 2008 for $8.5 billion, software performance manager Hyperion in 2007 for $3.3 billion, enterprise software and point-of-sale (POS) platform developer Micros Systems in 2014 for $5.3 billion, business and customer relationship software service provider NetSuite in 2016 for $9.3 billion, financial applications and business service expert PeopleSoft in 2005 for $10.3 billion and one of their more notable target acquisitions (among many other smaller buyouts) that still appears to be in the works but should be in the final stages of closing shortly, Cerner for around a staggering $28 billion.
In a nutshell, Cerner is a technology company with most (if not all) of its focus on data and information within the healthcare sector. Specifically, the company specializes in collecting and maintaining health records while partnering and integrating its software with doctors, hospitals, pharmacies, labs and other relevant facilities.
Some of Cerner’s (now nearly Oracle’s) well known clients include the likes of the Department of Defense (DOD) and the largest Catholic health system in the United States, Ascension Health.
Data, some more data and then a little more data pretty much explains Oracle and what it’s focused on.
At the end of the day, Oracle can simply be viewed as an enormous software company with a heavy emphasis on data collection through its software subsidiary’s products.
At any rate, that’s the primary way in which the company generates revenue; licensing its cloud (software) services to customers worldwide, some of which include the likes of universities, as one of MacroHint’s founding partners noticed at the university he attends that Micros’ equipment is used throughout dining halls and stores on campus, not to mention that some report that the company serves each company within the entire Fortune 500.
Now that we’ve established a sort of baseline regarding Oracle, what it focuses on and how it makes money, it’s only right that we commence our investigation of this company’s financials in order to determine whether or not this company’s stock is worth buying and holding for years to come.
Oracle’s stock financials
At a current share price of $89, Oracle has a prevailing market capitalization of $238.9 billion, a price-to-earnings (P/E) ratio of 28 and distributes an annual dividend of $1.28 to its shareholders, which is presently yielding 1.43%.
Analyzing these preliminary financials, Oracle’s stock (NYSE: ORCL) appears to be modestly overvalued according to the fact that its P/E ratio stands a bit higher than the average or what is generally said to indicate that a company’s stock is trading at fair value, 20.
While this isn’t a resounding positive, we’re grateful that the company’s stock isn’t wildly overvalued even though demand for its products and services has likely remained resilient in light of the growth of the software as a service (SaaS) space.
We also like that the company issues a dividend, as most software companies don’t as they are frantically trying to continue growing their company, its technology and its overall capabilities before even thinking about adding any unnecessary capital drains.
While we’re sure Oracle is still growth oriented, it has been around for quite some time and has thoroughly established itself and can thus likely afford to shell out a dividend in order to reward its shareholders for being part owners in the company.
Onto the company’s balance sheet, Oracle’s executive team, of which still includes Ellison, is tasked with handling around $109.2 billion in total assets along with approximately $115.5 billion in total liabilities.
Although we usually don’t take too kindly to large, established companies having upside down (more total liabilities than total assets) balance sheet structures, it makes sense that Oracle’s total assets and total liabilities are configured this way.
Particularly, given the slew of headwinds that have and still currently plague the software space, such as supply chain issues and currency headwinds (namely, a strong U.S. dollar, which is bad for U.S. exporters) combined with the fact that Oracle has a vast range of operations around the globe in what can appear to be far too many industries and sectors to count, Oracle was always bound to have a lot of debt and other liabilities, at least, from our vantage point.
Nevertheless, since this is a reality that we’ve internalized and understood for the most part, we are happy to find that the company’s total liabilities don’t trump its total assets by too wide of a margin.
Also, for the foreseeable future we see Oracle continuing to grow inorganically (through acquisitions) and as can be seen in the paragraphs above, some of these acquisitions have cost even a company as large as Oracle a pretty penny.
As long as the company’s executive team can properly allocate and deploy its assets and liabilities, we’re not crushingly concerned with the general state of Oracle’s balance sheet, although we do sympathize with those who have their worries.
As it relates to the company’s income statement, the company’s total revenue over the last five years has been as solid, consistent and predictable as its software reach and capabilities.
For instance, Oracle’s total revenue each year between and including 2018 and 2020 stood at $39 billion, subsequently rising to around $40.4 billion in 2021 and to its latest reported figure of $42.4 billion in 2022.
These are the numbers we love to see when pondering an investment in a company during the early innings of what will likely be a severe recession, if not a full-blown economic depression.
This is one the perks that comes with having apparently all of the companies within the Fortune 500 as clients.
What else is there to enjoy about Oracle’s financials?
Just take a gander at the company’s cash flow statement.
The company’s net income over the last five years has been resoundingly positive and its total cash from operations has remained consistently positive as well. For instance, the company’s total cash from operations during this time frame has ranged between approximately $9.5 billion (2022) and $15.8 billion (2021), which isn’t exceptionally strong but is most certainly confidence invoking for more defensive, conservative investors seeking to put some of their investable capital behind a well-capitalized, recession resistant corporation.
Oracle’s stock fundamentals
The SaaS space is competitive, to say the least, however, that hasn’t prevented Oracle from extracting a trailing twelve month (TTM) net profit margin greater than the average of its peers.
Specifically, the company’s TTM net profit margin is presently pegged at 19.09% to the industry’s average of 15.69%, which might not seem like a lot but any inch that Oracle can gain over its more than formidable competitors is considerable to us.
This is a great sign that Oracle is still able to keep its margins relatively wide and still ultimately carve out a sturdy net profit during times of uncertainty, such as now.
Finally, let’s take a look at the company’s TTM returns on assets and investment(s).
As it relates to Oracle’s TTM returns on assets, they lag behind the industry’s average ever so slightly, sitting at 7.48% to the industry’s average of 10.73%, in addition to its TTM returns on investment being pegged at 9.34% compared to the industry’s average of 13.9%.
We’re just happy that Oracle’s TTM returns on assets and investment are close to its peers, although we did have an initial expectation that it would be about the same as its competitors, not slightly lower.
Nevertheless, as long as its TTM returns on assets and investment aren’t way off (to the downside) from its peers, we feel quite neutral and ultimately unconcerned with the state of the company’s returns on its assets and investment(s).
A consideration for Oracle
Obviously, it’s no secret that Oracle is an acquisition machine and won’t likely stop anytime soon, especially as more and more smaller, sleeker and leaner specialized software companies gain traction.
However, there is one company in particular that we think would be an essentially perfect fit for Oracle.
Enter Workday.
Workday is a leader in human capital management (HCM).
What in the world does that even mean?
Well, it means that Workday is a software as a service company that provides HR-focused capabilities for institutions of all sorts, such as universities, general organizations, businesses and companies alike. We like to view Workday as an employer and employee all-in-one platform that handles and manages matters such as training modules, timekeeping, payroll, benefits and seemingly anything and everything between an employer and an employee.
Although a relatively young company (founded in 2005), Workday collects and stores a lot of data and Oracle does the same.
Workday also has performed a lot of legwork in terms of acquiring high-profile clients that can afford to stick with Workday even when the strength of the economy wanes, as it has also made its product offerings “sticky,” which means once someone or some entity begins using Workday’s software, it is incredibly difficult to detach, which is a great thing for Workday.
As a sort of reference, Workday’s clientele includes institutions from a variety of sectors, including companies such as AT&T, Sky, numerous universities such as the University of Pennsylvania, Cornell, the University of Virginia, The Texas A&M University System among many, many others, not to mention other major companies like Netflix, AstraZeneca, Cushman & Wakefield, Shake Shack, Ryder, Target, Otis, Mondelez, IBM, PwC, Aon, Avago and again, a multitude of other customers.
For a company that is still rapidly growing, these are some fantastic customers to have gained early on throughout the maturation of its business.
This acts as one of the main points of attraction for Oracle, as it can also afford to purchase Workday outright, at least, at this current stage.
In fact, this is one of the reasons we hope Workday is already on Oracle’s radar.
Specifically, as Workday continues to grow and become more valuable in the eyes of Wall Street, it will become exponentially more difficult for Oracle to afford the company.
At this point in time, Workday’s market capitalization stands at just south of $43 billion, which we think Oracle wouldn’t mind paying (or in the neighborhood thereof) but is still a full and fair price to pay for a quality data and SaaS company.
For the sake of continuing to make strategic acquisitions and grow its own business, Workday surely should be on Oracle’s wishlist, at least from our viewpoint.
Should you buy Oracle stock?
Oracle is a software behemoth and data beast.
Although this company’s stock is a bit pricey at the moment relative to its value, we think investors who are looking to put capital to work into companies with exemplary track records, a history of making savvy, forward-looking acquisitions all while churning out consistent total revenues and cash flow, not to mention the company’s fortified TTM net profit margin, should consider investing in Oracle.
Nevertheless, as we at MacroHint strive to remain grounded and objective in our reasoning and analysis, this company isn’t growing like it used to yet its stock is a bit expensive relative to what it’s truly worth at this current juncture in time.
Therefore, putting all of the data and facts together on Oracle, although we are bullish overall on the company as well as its prospects on many fronts, we deem it most appropriate to give the company’s stock a “hold” rating.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.