What Does the Oracle of Delphi Foresee In This Company’s Future?

Ryan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

A SWOT analysis is a look at a company’s strengths, weaknesses, opportunities, and threats, and is a tremendous way to gain a detailed and thorough perspective on a company and its future. As the 2012 year draws to a close, I would like to pinpoint on a leader in enterprise software and hardware industry, Oracle (NYSE: ORCL).

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Strengths:

  • Solid Revenue Growth: In 2007, Oracle reported revenue of $18.2 billion; in 2012 the company raked in $37.1 billion of revenue, representing 15.31% year over year annual growth

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  • Net Profit Margin: Currently Oracle possesses a net profit margin of 26.89%, representing a company  that is profitable and strong
  • Reasonable Valuation: At the moment Oracle carries a price to earnings ratio of 15.92, a price to sales ratio of 4.38, and a price to book ratio of 3.79, all of which indicates a company that is relatively fairly valued
  • Brand Value: Forbes rates Oracle as possessing the 11th most powerful brand in the world, with the brand value being estimated at $25.9 billion, with only $79 million spent on advertising in 2011
  • Institutional Vote of Confidence: 61% of shares outstanding are held by institutional investors, displaying the confidence some of the largest investors in the world have in the company and its future  

Weaknesses:

  • Debt: Oracle currently possesses around $18.5 billion of debt on their balance sheets, a major downside to the company’s business and future; this debt has grown significantly over the past years

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  • Market Saturation: The wide majority of customers that are in need of Oracle’s product and services either already have the products and services from Oracle or another company
  • Lack of Dividend: Oracle recently announced that it would be paying three quarters’ worth of dividends originally scheduled for 2013 because of the uncertainty revolving around the fiscal cliff, and since then this dividend has been paid, leaving investors with no further dividends in 2013
  • Dependence on US & Europe: 53.73% of total revenue in 2012 was derived from the United States or Europe, and dependence on these stagnant markets could hurt Oracle going into the future

Opportunities:

  • Acquisitions: Since 2000, Oracle has acquired nearly 75 companies, with the most recent being Eloqua, and further acquisitions should fuel growth into the future
  • Innovation: Oracle has a long track history of consistent innovation, and further innovation in the company’s software and hardware products should fuel growth; cloud computing is an area of high opportunity
  • Asia Pacific: In 2011, Oracle reported revenue of $5.9 billion from its Asia-Pacific region, just one year later in 2012, the company reported revenue of $9.1 billion from this region, representing 54.24% year over year growth, and this explosive growth is highly anticipated to continue into the future
  • Gaining Market Share: While Oracle is a major player in its industry, gaining market share is always an opportunity for any company, especially in a sector such as Oracle’s, as businesses are always on the search to innovate and save money

Threats:

  • Competition: Oracle faces incredible competition in the software and hardware industry, and this battle against some of the largest and most powerful companies in the world can be expensive and cut into profits
  • Supply Line Problems: Oracle’s supply chain provides hundreds of pieces to the company it requires to make its products, and any disruption in this chain could cause havoc on Oracle
  • Stagnant Global Economy: In stagnant and uncertain economic times, businesses are less willing to pour money into investing in their businesses, which could hurt Oracle’s revenue
  • Updating Infrastructure: Oracle’s data storage facilities must consistently be updated, which costs a significant amount of money that cuts into profits

Competition:

Major publically traded competitors of Oracle include SAP (NYSE: SAP), EMC (NYSE: EMC), International Business Machines (NYSE: IBM), and NetApp (NASDAQ: NTAP). SAP also offers software on an enterprise level, is valued at just under $100 billion, and pays out a dividend yielding 1.19%. EMC is a global leader in the information technology industry, however pays out no dividend. IBM also is a leader in the information technology sector, pays out a dividend yielding 1.76%, and is valued at a reasonable price to earnings ratio under 14. Finally, NetApp is a much smaller player in the information technology sector, being valued at just under $12 billion, however pays out no dividend.

The Foolish Bottom Line:

Oracle is a dominant force in its industry, and possesses solid and accelerated revenue growth. The company will not being paying out a dividend for some time to come, however this is offset by the reasonable valuation and brand value of Oracle. All in all, to the long term investor Oracle is a tremendous investment, however in the short term the company may face serious volatilely from the looming fiscal cliff and dependence on the United States and Europe.        


makinmoney2424 has no positions in the stocks mentioned above. The Motley Fool owns shares of EMC, International Business Machines, and Oracle. Motley Fool newsletter services recommend International Business Machines. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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