☁️ Can Oracle Emerge As A Cloud Powerhouse?

MGM, Pfizer sign respective M&A deals.

Hey Global Investor! Here’s what you need to know before the US markets open.

Market Snapshot 📈

S&P 500 (Monday’s Close) 4,668.97 -43.05 (0.91%)

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☁️ Oracle: The Cloud Powerhouse?

Database software company Oracle Corporation’s (ORCL) shares surged 15% on Friday – the second time they had risen by at least that much in two decades, adding $38.6B to its market cap. Co-founder Larry Ellison became richer than Google’s Larry Page and Sergey Brin in its wake. But why?  (Tweet This)

A “Cloudy” Transition

Oracle, the world’s second-largest software company in terms of market capitalization, beat analyst estimates for Q2 FY22 earnings. Growth was led by its cloud business.

Key Stats From Q2:

  • Revenue: $10.36B Vs $10.21B expected
  • EPS: $1.21 Vs $1.11 expected

Oracle’s cloud revenue, which combines its Logging as a Service (LaaS) and Software as a Service (SaaS) businesses, rose to $2.7B, growing 22% Y-o-Y. The company’s cloud services and license support business rose 6% from last year to $7.55B. Cloud License and on-premises license revenue rose 13% Y-o-Y to $1.24B, higher than the estimate of $1.07B.

When former Co-CEO late Mark Hurd had to quit his previous job at HP due to a scandal, Larry Ellison had commented that HP’s board made “the worst personnel decision since the idiots on the Apple board fired Steve Jobs.”

Within a month, Hurd was appointed President of Oracle before being elevated as Co-CEO alongside Safra Catz in 2014. Hurd continued in this post until he died in 2019. Ellison was so committed to Hurd that the company took a profitability hit in Q2 FY21 rather than capitulate in the decade-long dispute with HP. Hurd had laid the foundation for Oracle’s foray into all things cloud.

For the current quarter, Oracle expects revenue growth around 3-5% Y-o-Y with EPS of around $1.16 per share. Cloud service and license support business is expected to grow 6-8% in Q3. Oracle is also set to open cloud data centers in Colombia, Israel, Italy, France, Mexico, South Africa, and Sweden.

Blue Sky In The Cloud?

Oracle entered the SaaS business when it acquired the world’s first cloud company NetSuite for $9.3B in 2016. Since then, it has only played second fiddle to GoogleAmazon, and Facebook, which have grown much faster when it comes to cloud infrastructure.

After acquiring Sun Microsystems and its Java application programming interface, Oracle had sued Google for $9B, claiming copyright infringement. The 12K lines of code that Google had used to build Android using Java were at issue. Oracle even won the case in the US Court of Appeals, but the US Supreme Court overturned this ruling in a 6-2 verdict in April this year.

This loss didn’t faze Oracle if Q2 performance is anything to go with. Due to the pandemic, companies transitioning to the cloud and employees working from home were growth factors. Still, 75% of its Enterprise Resource Planning (ERP) customers have not yet transitioned to the cloud, which presents future opportunities. As of Q2, Oracle has 8.5K Fusion ERP customers and 28.4K NetSuite ERP customers.

Ellison’s wealth surged past Google’s co-founders Brin and Page. Just this year, Ellison’s net worth has appreciated by $44B, courtesy of the surge in Oracle’s stock price. Also, back in 2018, Ellison had bought a $1B stake in Tesla. That’s now worth $16B.

In 2021, Oracle shares ranked second only to Google in share performance, with its shares rising 61% (compared to Alphabet’s 71%). In doing so, it has left behind the likes of Facebook, Amazon, and Salesforce.

Current euphoria aside, Ellison has his work cut out if he’s serious about Oracle posing a serious threat in the cloud to incumbent triumvirate Amazon, Microsoft, and Google.

Market Reaction
ORCL ended at $100.89, down 1.7% after Friday’s 15% surge. Shares are up 59% this year.

Company Snapshot 📈

ORCL $100.89 -1.74 (1.70%)

Analyst Ratings (29 Analysts) BUY 21%  HOLD 66%  SELL 14%

Newsworthy 📰

Responsibility: US Senate committee faults FAA oversight of Boeing (BA -3.74%)

Deal: MGM Resorts to sell Mirage hotel and casino for $1.08B to Hard Rock (MGM -2.58%)

Acquisition: Pfizer bets on Arena Pharmaceuticals’ promising bowel disease treatment in $6.7B deal (ARNA +80.38%)

Later Today 🕒

  • RCI Hospitality Holdings Inc. Earnings (RICK)
  • CleanSpark Inc. Earnings (CLSK)
  • 7:00 PM IST: Producer Price Index

Today’s Market Terminology: Throughput

Throughput is the amount of a product or service that a company can produce and deliver to a client within a specified period of time. It is often used in the context of a company’s rate of production or the processing speed

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