Oracle Could Break $40 By 2013
Christopher is a member of The Motley Fool Blog Network -- entries represent the personal opinions of our bloggers and are not formally edited.
Oracle (NASDAQ: ORCL) is a dominant player in the database software industry and has proven its resilience against competitors such as IBM (NYSE: IBM) and Microsoft (NASDAQ: MSFT) in the long term to take its place among the elite in business software and IT solutions. Its stock performance was stagnant in 2011, but I believe that it is poised for growth as we move into 2012. Oracle’s rapid growth over only the last three years coupled with recent innovations is what will set this company up to make a big move in 2012 due to recent acquisitions and product releases.
Oracle’s recent expansion over the last three years has been driven largely in part by the acquisition of 29 companies between 2008 and the end of 2011. One of the most notable acquisitions during this period was that of Sun Microsystems, the owner of Java, which is a key programming language used in many online applications. Other key acquisitions include that of BEA Systems— which specializes in enterprise software, Primavera— which provides project portfolio management services, Endeca— which provides key technologies in the areas of business intelligence and e-commerce and RightNow Technologies— which strengthens Oracles cloud computing software. In 2008, Oracle possessed total assets worth $47.4 billion and was operating with liabilities of $22 billion, but by the end of 2011, the company possessed $73 billion in assets and $30.6 billion in liabilities, effectively growing its assets by 55% while only adding 36% to its total liability.
Oracle has played a major part in consolidating the data software and IT support industry through its constant grabs over recent years. The process has been ongoing, and Oracle began its acquisition frenzy back in 2005 when it grabbed 13 companies in one year, which included PeopleSoft. Oracle’s ability to assimilate its competitors while limiting its liability will be a major contributor to its success looking forward into 2012 and beyond. Despite acquiring 29 companies in only three years, Oracle has done so without adding anything to its long term debt over the same period— which stands at $14.7 billion.
This acquisition strategy has allowed Oracle to keep up with IBM, which is a leader internationally in system integration services. IBM serves clients in over 170 different countries and generates about 65% of its cash flow from outside of the United States. IBM has a market cap of $277 billion, which is almost twice that of Oracle, with a cap of $144 billion. While IBM is a strong competitor in the global market, Oracle has stood its own by providing hardware and software solutions that compete directly with the functionality of IBM’s systems.
Microsoft competes with Oracle as well with its own array of business products that range from cloud computing software and CRM to advertising software and security services. Microsoft is a solid player in the field, but it is not as significant of a competitor as IBM due to its location in multiple markets. Microsoft generates most of its money off of its Windows operating system and Office software and has a foothold in the search engine market. Its new direction into China’s search market and attempt to enter the smartphone market make it less of a threat to Oracle than IBM.
Oracle has ramped up its profitability over the last three years, generating $5.6 billion in 2009 followed by $6.1 billion in 2010 and $8.5 billion in 2011. It is currently averaging over $2 billion in net revenue per quarter and I believe that its acquisitions and growing revenue will contribute to investor confidence in 2012. Its profitability will take a back seat to its new innovations, however, and I believe that the its recent release of Oracle Advanced Analytics will be what catches the immediate interest of potential investors.
In reference to the new program, Oracle Senior Vice President Andrew Mendelsohn said, “Oracle is delivering a scalable and secure Big Data platform to help our customers solve the toughest analytics problems.” The program is designed to increase the efficiency of clients’ data mining and interpretation in order to provide information on business performance and trends in order to improve overall efficiency and determine where changes need to be made. Clients are already lining up to implement the new programming as part of Oracle’s existing enterprise solution software.
Between 2009 and 2010, Oracle’s stock more than doubled from $14 per share to $32 and had a stagnant year in 2011, losing $4 in value overall to rest at $28. I believe that its new acquisitions and software release will attract new investors and it will make a bullish run through the year. Its stock has already passed its 30 day moving average recently and is flirting with its six month and 12 month averages. Once it breaks the ceiling, I believe it is sure to stretch to at least $40 per share by the end of 2012 or early 2013.
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