The Rewards of Consistency
Subhadeep is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The term consistency has become synonymous with ‘software and database King’ Oracle (NYSE: ORCL), so much so that the company’s performance fails to surprise tech industry watchers these days. With the company reporting revenue and profit for the second quarter that easily beat analyst expectations, it just reaffirms what I mentioned about its cloud-based prospects in my earlier article. The sheer focus of the company on cloud-based software, along with offering a much broader range of products, seems to have paid off handsomely in the long run. Add to it the fact that the company has made additions to its sales force at a scorching pace, and you can see why Oracle is comfortably positioned to fend off competition from relative newbies, such as Salesforce.com (NYSE: CRM) and Workday.
In fact, Oracle has now reached a point where they can confidently say that they have ‘something for everyone,’ which perhaps explains their brisk business, even during a traditionally dull December. Although it needs to be acknowledged that Oracle has spent a humongous amount of cash in recent years to expand its product portfolio (actually a whopping $38 billion since 2005), that can be easily offset by its sheer financial muscle and rapid topline growth.
Hardware continues to be Oracle’s Achilles’ heel, however, and I am not willing to wager my hard-earned money on the forthcoming turnaround in the hardware division, as claimed by CEO Ellison. Only time will tell the effects of the downsizing of Sun Microsystems, Oracle’s most expensive acquisition till date. But here’s a lowdown on what makes me smile about Oracle at the moment…
First, the company’s new software licensing and subscription business has performed exceptionally well, recording a 17% y-o-y rise to $2.39 billion. That is the ultimate proof that Oracle’s ‘cloudy’ shift in strategy has been a sound one indeed. The fact that this part of the revenue makes up for a quarter of the company’s overall revenue figure certainly speaks of soundness in the long term. Not to forget that this would mean year over year renewals in revenue from licensing and subscription activities, even as Oracle continues with a slew of software upgrades. In fact, the company could successfully boost new licensing revenue even in Europe, a region most companies have all but given up on.
Second, Oracle seems to have taken solid steps to surpass the competition. The company’s ‘Fusion’ technology, which increases the efficiency level of complex IT jobs and creates smart business applications, has been the key its success over rivals SAP AG (NYSE: SAP) and IBM. It has also brought in a wider pool of customers, including United Airlines, Expedia and Xerox, to name a few. Fusion is also helping the company win customers from the likes of Workday, especially because Oracle is offering it as part of a complete range of cloud-based software applications in the areas of CRM, HCM and even ERP. At the same time, Oracle has been quick to adapt to the Software-as-a-Service (SAAS) model that puts it on a stronger competitive footing with Salesforce.com and Workday. Oracle has been quick to realize that customers, especially middle and lower level ones, would prefer subscription-based models like SAAS instead of paying considerable amounts as licensing and maintenance fees.
The company's aggressive acquisitions are also helping to expand the product line, with the latest being its plans to acquire cloud-based marketing specialist Eloqua. This should especially put Oracle one step ahead of Salesforce.com as the latter has had a longtime association with Eloqua in the CRM scenario. A lot of Eloqua’s customers that have adopted solutions marketed by Salesforce.com now have a good chance of opting for Oracle’s sales automation products, given the right marketing incentives. Oracle’s strong marketing team would surely make a solid effort in this direction.
The third important thing which investors should be really excited about is ‘Oracle Cloud’, a complete set of cloud computing software that places it ahead of market leader SAP in an otherwise demanding market. With its ability to combine ‘Software-as-a-Service’ and ‘Platform-as-a-Service’, Oracle is adding to the advantage over SAP by working towards ‘Infrastructure-as-a-Service’. At the same time, SAP’s popular HANA software offering has been a distinct point of concern for Oracle. While Oracle is going all out to match that up with its very own Exalytics in-memory appliance, it has to be acknowledged that SAP has a headstart in the realm of Big Data.
This is one company that has loads of cash, a dedicated sales force and some market-winning software. But the best thing about Oracle is that it has successfully projected itself as a ‘one-stop shop’, eliminating the need for company IT heads to negotiate with multiple vendors. This is one stock you can safely put your money into, lay your head back and rest, at least for the next two to three quarters. Fool on!
subhadeeptech has no positions in the stocks mentioned above. The Motley Fool owns shares of Oracle and has the following options: long JAN 2013 $50.00 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!