Intense Competition Challenges Oracle…

Oracle provides products and services that address enterprise information (within) technology environments. These offerings could be through cloud, licensing, hardware and services businesses. It is a leading provider of business software, with a broad portfolio of solutions for companies of all sizes.

Oracle’s products and services include applications and infrastructure offerings that are delivered worldwide. The company operates through various IT deployment models including on-premise, cloud-based, and hybrid deployments. Oracle’s businesses include cloud and license business which accounted for 83% of 2019 revenues, and hardware (9%) and services (8%). Oracle owns registered trademarks of Oracle and Java. Java is the most widely-used software development language in the computer industry.

Oracle’s customers include businesses of many sizes, government agencies, educational institutions, and resellers. It serves more than 430,000 customers in 175 countries worldwide. By geography, the Americas is Oracle’s largest revenue segment accounting for 56% of total revenues followed by EMEA (28%) and Asia Pacific (16%) regions.

Investment Data

Revenue Growth & Market Exposure

Oracle provides a wide range of software and services. Its Cloud Software-as-a-Service and Infrastructure-as-a-Service offerings provide a comprehensive suite of applications and infrastructure services delivered via a cloud-based deployment model. Oracle Cloud services are designed for faster deployment, better client experience, and easy maintenance. Oracle cloud license and on-premise license deployment offerings include Oracle Applications, Oracle Database and Oracle Middleware software offerings which can be deployed using IT infrastructure. Oracle hardware product offerings include Oracle Engineered Systems, servers, storage, and industry-specific products.

Oracle provides its customers the flexibility of when and how to deploy its applications and infrastructure technologies. It continuously focuses on improving the security, operation, and integration of its technologies to improve the computing performance of its offerings. The company is known for providing enterprise-grade, reliable, scalable and secure solutions to its clients. Oracle caters to customers in a wide range of industries like communications, construction and engineering, financial services, health sciences, hospitality, manufacturing, public sector, retail, and utilities, etc. It has 20,000 partners across the globe and occupies the No.1 position in a majority of the key segments.

Oracle can be credited with the development of the world’s first autonomous database. The company spends billions of dollars on research and development in order to stay ahead of the competition. Oracle has, in fact, spent ~$64 billion on R&D activities since FY 2004 and holds more than 18,000 patents worldwide. The company is growing organically and through acquisitions. It has a strong history of successful integrations with over 140 acquisitions worth $80 billion.

Dividends

Oracle’s recent dividend growth has been impressive with the past 3-year dividend CAGR of 14%. The company last raised its dividend by an impressive ~26% and has a low payout ratio of 30% indicating ample scope for future expansion. Its annual average yield stands at 1.7% currently. Given the company’s healthy balance sheet and low payout ratio, a dividend increase in a high double-digit can be expected in the near future.
With four decades of experience, Oracle has developed a deep understanding of how applications, platform and infrastructure technologies interact and function with one another within corporate IT environments. Customer demand for Oracle’s applications and infrastructure technologies through its Cloud services deployment model has been growing over the recent period. The company’s ability to offer products that are cost-effective, easier to use, and maintain has resulted in a sticky customer base. Oracle is in a good position to benefit from contract renewals and inter-platform sales opportunities.

A majority of Oracle’s revenues are derived from software and hardware license updates as well as product support. Software offerings are also renewed annually which adds to the cash flow visibility. The company continues to generate rapid growth in the multibillion dollar ERP segment of its cloud applications business which has enabled it to deliver double-digit EPS growth rate YoY.

Competition

The company faces intense competition in its business. Oracle competes directly with global giants like Amazon.com, Microsoft, International Business Machines, Intel Corporation, Cisco Systems, Adobe Systems, Alphabet and SAP SE, as well as other companies like Hewlett-Packard Enterprise, salesforce.com, and Workday. The company’s ability to offer broad, flexible and interoperable deployment models for applications and infrastructure technologies is its key competitive advantage.

The competition and Oracle’s ability to stay relevant is going to be the difference between accelerated growth or business as usual.

Bottom Line

Oracle Cloud Services offerings provide opportunities for the company to expand its cloud and license business. An increasing shift towards the deployment of cloud-based IT models is a strong tailwind for the company. A large geographic reach, growing base of loyal customers, and extensive portfolio of applications, platform and infrastructure technologies form deep moat around Oracle’s business. It entails a lot of technical expertise to develop IT products and gain clients’ trust for providing mission-critical IT systems. As a major business software provider and a leading global cloud services company, Oracle stands a good chance to benefit from growing data and communications demand.

Can the old business of Oracle evolve with the new cloud offerings? That’s really the big question much like IBM had to re-invent itself.