Investment Thesis
- Industry leader with a solid portfolio and proven track record in achieving solid profitability and leading high and improving margins. ORCL has a large global footprint (of customers and developers).
- Leader in relational database market with market shares of top 4 vendors (ORCL, Microsoft, IBM and SAP) largely unchanged since 2000. ORCL leads the other 3 players. These top 4 vendors hold ~80-85% market share whilst there is significant churn across the smaller vendors. According to ORCL, the Company’s database offerings lead competitors based on performance, reliability and security. For instance, ORCL’s Cloud Database has 35x faster online transaction processing (OLTP) than Aurora on AWS. Note: OLTPs are typically used to support order entry and transactions on the internet.
- ORCL’s Autonomous Database (available since August 2018) has been well-received by customers and presents cost savings for customers by reducing costs of ongoing maintenance.
- ORCL’s cloud ERP has the potential to become the market leader. ORCL arguably has a wider breadth of products within its ERP offering compared to its close rival SAP.
- Strong and substantial cash generation which enables the Board to consider capital management initiatives such as large stock repurchases and or undertake further acquisitions which fill gaps in the Company’s product portfolio.
Key Risks
- Aggressive competition by other established players like Microsoft, Salesforce and SAP. Further, ORCL competes in a rapidly changing competitive environment whereby other vendors seek to gain share by disrupting large legacy vendors in offering similar products at lower price points (if not free such as PostgreSQL, Apache and Cassandra).
- Any deterioration in the global economy and weakening of IT spending.
- Market share loss in database business.
- Lack of customer demand for Autonomous Database.
- Market share loss as a result of corporations migrating to cloud computing.
- Potential strengthening of USD providing currency headwinds.
- ORCL has a history of making acquisitions to fill its product portfolio gaps. As such, execution risks arise with any failure to integrate the acquisition.
Key Highlights
- For FY23 Cloud business (excluding Cerner) to organically grow more than +30% in CC (vs +22% in pcp), Cloud service & License support to deliver double-digit organic growth, gross margin to be significantly higher y/y, capex to be higher y/y to meet the demand by adding another 6 cloud regions to take total region count to 44, Cerner acquisition to be accretive to earnings, including in 1Q23.
- For 1Q23 total revenues (including Cerner) to grow +20-22% in CC with total Cloud growing +47-50% in CC (+25-28% in CC excluding Cerner) with FX being 3-4% headwind on total revenue, non-GAAP EPS to grow +6-10% and be $1.09-1.13 in CC with FX being $0.05-0.06 headwind.
Company Description
Oracle Corporation (NYSE: ORCL), was founded in 1977 and is a global leader in providing enterprise software. The Company’s businesses include cloud and on-premise software, hardware and services. Its cloud and on-premise software business consist of three segments; Cloud software and on-premise software, Cloud infrastructure as a service (IaaS) and Software license updates and product support. The Company’s Hardware business consists of two segments, including hardware products and hardware support and the Services business includes activities, such as consulting services, enhanced support services and education services.
(Source: Banyantree)
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