Why This Company is "Soft"ening up for Good
Subhadeep is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The way I look at it, this behemoth is moving remarkably fast for its size. I’m talking about Oracle (NYSE: ORCL), the company that’s on a recent roll as it soars ahead towards the clouds. The company’s increased focus on "cloud computing" services really seems to be a decision taken at the right time, as sagging hardware division sales continue to be a pain point. At the same time, its high end engineering systems division is fast emerging as another major cash cow for the company. And again, if there is any single factor that has been responsible for the company’s first quarter revenue missing analyst estimates, it is computer hardware sales. Yes, software seems to be the way to go, as revenue from new applications and cloud subscriptions increased by 5% from last year’s period, along with a healthy 3% growth in support fees.
So what’s really pushing this growth?
Well, for one, the stream of acquisitions made right up to this year, including RightNow and Taleo, are showing results now as application sales such as those of human resources and customer service software have picked up, despite a traditionally slow-moving first quarter. In fact, the company is now second only to market leader SAP AG (NYSE: SAP) in terms of software application sales. Even then, Oracle’s software offers simplicity and the ability to combine ‘Software-as-a-Service’ and ‘Platform-as-a-Service’, which places it a notch ahead of SAP in this market. At the same time, SAP has a distinct edge in the realm of Big Data, where its popular HANA offering has been in the market for around a year now, compared to Oracle’s newly launched Exalytics in-memory appliance. Oracle needs to quicken its pace in Big Data to make up for its late start.
The other big competitor Oracle has been busy trying to unseat from its present position is Salesforce.com (NYSE: CRM). With both Salesforce and Oracle engaging in a stream of social media-related acquisitions, the former has fired its latest salvo in the form of Marketing Cloud. Salesforce’s brand new offering helps companies keep a track of what’s being discussed about their brands on social networking sites such as Facebook and Twitter. Oracle is yet to come up with something similar, but it certainly has the financial power and innovativeness to do so. After all, Oracle is so much larger than Salesforce.
Having said that, the scenario still looks bright going ahead, as Oracle plans to announce 12c, its new cloud computing-related software. That is going to be the ‘Infrastructure-as-a-Service’ part of the company’s most widely known innovation – the Oracle Cloud. This completes the full circle of cloud computing software that the company is offering its customers, complementing its range of ‘Software-as-a-Service’ and ‘Platform-as-a-Service’. Further reasons to worry for SAP, I should say. The best part seems to be that Oracle Cloud provides the ideal platform for developers wanting to build web-based applications for both desktop as well as the mobile space. The implications are awesome, to say the least, and should be music to the ears of potential investors, given that software sales have emerged as a high margin business that comprises long-term contracts. And it’s far less expensive to acquire for customers, who are staying away from spending millions on installing on-site hardware.
This is one company that seems to be on the right track. Revenue is on the rise in Americas and the Asian region, taking a hit only in Europe due to the general economic slowdown there. And operating margin has zoomed up 44% as a result in Q1 as a natural outcome. It’s time to keep a close eye on Oracle. Fool on!
subhadeeptech has no positions in the stocks mentioned above. The Motley Fool owns shares of Oracle and has the following options: short JAN 2013 $150.00 calls on Salesforce.com and long JAN 2013 $150.00 puts on Salesforce.com. Motley Fool newsletter services recommend Salesforce.com. 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.