Cloudy With a Chance of Acquisitions
Shaunak is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
What is Cloud?
Clients love it. Providers strive to be the best at offering it. So when we are talking about technology, Cloud(y) is never a bad thing. If you want to know more about Cloud computing and Cloud technology, the first thing you type into your search engine’s minimalistic text box is the word "Cloud." It seems pretty funny initially, I had never tried searching wind, rain, soil, et cetera this way and most of you haven’t either! So what is so special with Cloud? Let’s take a look.
Imagine a bundle of resources that everybody is free to use. That's Cloud.
A closet where everybody can keep their stuff in, that is Cloud.
It is the bottle of ketchup that everybody can pour out one by one!
The blooming next-big-thing in technology is - Cloud.
Enticing? Yes! This is why the biggest names in technology have been moving on to a platform which is suitable to provide such a framework.
Oracle Joins The Party!
At the helm of it all, Oracle (NYSE: ORCL) is reinventing Cloud services. Oracle has been dedicatedly working on rewriting its applications for supporting Cloud computing over the past 7 years. They are offering a complete Cloud suite that is supported by three layers of the Cloud- the application, a platform, and the underlying infrastructure. This complete Cloud solution is making it very hard for other established providers to compete with them.
There are two versions of Oracle's new Cloud service. One is a "public Cloud" where the hardware is located in Oracle's data centers. The second is the Oracle private Cloud, where a replica of Oracle's public Cloud is put in the customer's own data center. Oracle would still own the hardware and be responsible for running it, securing it and updating it. All that is expected from the customer is to pay for it.
Playing the Field:
SalesForce (NYSE: CRM) and Amazon can be considered major players in Cloud technology having established a name and a sturdy reputation for their service in the field. CRM has got over $4 billion worth of trust put in their technology from clients over the world.
Western Express has recently chosen to use applications of SalesForce and Dell cohesively to further their foray into the Cloud industry. The CRM solution from Dell and SalesForce is expected to be effective in handling customer information wisely.
Revenues rose by 34.0% y-o-y for SalesForce although this hasn’t had any positive movement in earnings per share, which in fact has declined over the year. Net operating cash flow has significantly increased by 64% to $136.20 million.
Although it seems like a good stock for your portfolio, there are a few statistics to keep in mind.
SalesForce’s net income has significantly dropped by about 130% when compared to the same quarter one year ago, falling from -$4.27 million to -$9.83 million. There is slight concern over CRM’s return on equity which has decreased as well, trailing the industry average and the S&P500.
Overall when it comes to SalesForce, they have got positives-a-plenty. Solid revenue growth, good cash flow from operations, and a rising stock price during the past year; rising from a 52 week low of $94 to a peak of $164 a share seems to be a great run, but I’d hold my money for now.
Oracle Will Win
Ellison's belief in Cloud has come a long way since 2008 when he called it a "fad", much like fashion. Now he is ready to offer a One-Stop solution for all its clients unlike Amazon and SalesForce. Lock, Stock, and the whole Cloudy lot. It is very likely that the market will embrace Oracle easily, especially with the world's largest corporations already entrusting their data by using the Oracle Database.
Although a lot of Oracle's growth was pushed by strategic acquisitions over the past decade, they are concentrating on "organic growth", utilizing their existing assets and expecting great growth in the next fiscal year. The hardware sector is also expected to grow this fiscal year.
If no acquisitions are on the way, where does Oracle plan to put its pile of money? The answer is dividends. The plan is to use the company cash, which is over $31 billion, to boost dividends gradually.
So short term, it is safe to expect solid growth from Oracle and with Ellison not completely ruling out acquisitions in a few years, I doubt there'll be a bumpy road ahead for Oracle shares. I'm expecting to see brilliant growth for them.
During the quarter, Oracle expanded its software business by 11 percent, with double-digit increases in Asia and the U.S. They’ve expanded their product line effectively, keeping in mind the strict IT budgets by offering consolidated Cloud services, and with data increasing by 40% to 45 %, clients will surely look for the cheapest and the best option. Oracle fits the bill.
Oracle has met almost all analytical forecasts this year but they have missed their revenue figures. Revenue decreased 2 percent $8.21 billion from $8.4 billion last year, but net income rose 6 percent to $2.6 billion. A lot of enhancements are expected for Oracle Cloud in the next few weeks which will surely boost the sales figures going forward.
Oracle's recent strategies seem to reflect great prospects for the future. Their shares are healthy, and they’ll only get better with time.
Shaunak88 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.