Trading Oracle on Workday’s Big IPO
Douglas is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
In one of the largest and most successful IPOs of the year, HR software maker, Workday (NYSE: WDAY), debuted on Friday by soaring nearly 74% in its first day of trading. The warm reception leads to the immediate question as to how this market participant will impact its larger rivals, specifically Oracle (NASDAQ: ORCL) and SAP. The new company was co-founded by Dave Duffield, one of the creators of PeopleSoft, which was acquired by Oracle for several billion dollars. While Workday’s future looks promising, Oracle remains strong and remains a buy at current levels.
The IPO
When Workday shares began trading on Friday beyond their $28 offering price, it was quickly apparent that the reception would not be a repeat of the one received by Facebook; after the social networking IPO, Workday has been one of the most anticipated offering this year. Workday falls into the category of software-as-a-service (SaaS) and leverages cloud computing to give it extreme flexibility. Liz Herbert of Forrester Research explains the importance of SaaS: “Clients are looking for solutions that they can implement very quickly, sometimes in weeks or months, and this is driving them to look for software- as-a-service solutions.”
Dave Duffield, who has become something of a legend in the space, said that one of the primary advantages that this company has it that its architecture was created from scratch. He points out that while competitors must revamp existing systems in order to help them function in the cloud, because Workday began there, it can provide a cleaner solution. The company’s software is used for HR functions like payroll, tracking employee expenses and others.
The Impact on Oracle
Oracle acquired PeopleSoft several years in an effort to become the largest player in HR software solutions – PeopleSoft was also co-founded by Mr. Duffield. Since that acquisition, Oracle has also acquired Taleo and SelectMinds in an attempt to round out its product offerings. These later additions are more targeted at the customer relationship management software segment of the enterprise software spectrum, but provide an important insight into one of the real strengths of Oracle in this space.
As Oracle continues to expand its ability to provide cloud computing through Oracle Public Cloud, with both on-location hosting and totally remote server capabilities, filling out its SaaS portfolio is an important step. With its sheer size and breadth of services, Oracle is able to offer its customers complete and integrated solutions not yet possible from Workday. Where the upstart offers a very quick entrée into the HR software world for smaller businesses, Oracle’s ability to provide vertically integrated solutions should provide it with a fair degree of insolation. In the enterprise software realm, challenges from SAP that is more able to directly compete are larger concerns.
The “one-stop shop” mentality should not, however, suggest that Workday does not pose a real threat to Oracle’s PeopleSoft over the longer-term. Workday can already boast 340 clients, including some large corporate names like Kimberly-Clark and Flextronics, but it has some ways to go before it threatens Oracle or SAP in a structural way.
The Trade
While the IPO of Workday does have the potential for some long-term impact on Oracle, it does not create competition that was not present last Thursday. The success of the IPO, in fact, can be seen as a positive for Oracle in that it should call investor attention to the company’s strong overall position. While the company’s 0.8% dividend yield is not a huge sweetener, to have an income element to go with a solid P/E of 15.5, well below the industry average at 22, the stock looks solid at current levels and is a buy.
dsewrites has no positions in the stocks mentioned above. The Motley Fool owns shares of Oracle. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
