What are Oracle’s (NYSE:ORCL) Prospects?
NEW YORK – There is no question that Oracle (NYSE:ORCL) had a rough quarter but what are the company’s prospects? It would appear that increasing demand for ERP and business intelligence software along with data storage and integration tools is expected to fuel the industry in the future. Given this, is Oracle a smart play?
According to reports, ERP spending worldwide is projected grow by 7 percent per year from 2013 to 2017, reaching a total market size of $ 34 billion in that period. While Business Intelligence spending worldwide is projected to grow to more than $ 18 billion by 2017 – a growth rate of roughly 7.3 percent per year. Meanwhile, the numbers for Data Integration and Data Quality tools worldwide are even more exciting as the market is expected to reach more than $ 6 billion by 2017 with a growth rate of more than 10 percent per year. For Oracle, this is good news as these are markets that the company is well positioned to service.
Furthermore, new product launches and the monetization of acquisitions will push the company into new market segments, creating opportunity for Oracle’s direct sales team to engage with install base customers and realizing growth in revenues. Another strength is the long-time database and maintenance revenue stream, where Oracle is well positioned to increase their share in applications and cloud segments, taking on SAP (NYSE:SAP) and Microsoft (NASDAQ:MSFT). Oracle’s free cash of more than $ 6 billion does not hurt either.
With all of this going for the company, why has revenue been flat? One reason is Oracle’s lack of share in Asia – which only contributes 23 percent to the company’s growth in total revenues. Another reason is an apparent slowdown in new software licenses and cloud software subscriptions as compared to renewals. This might point to a slowdown in the broader market while Oracle is not losing share, it is not actually gaining either.
Even with sluggish growth, the company is profitable, and operating expenses have fallen in fiscal 2013 by 2 percent to $ 22.49 billion. This is even with the addition of sales, sales, marketing, and research and development headcount added during fiscal 2013 due to acquisitions. Overall, margins improved in 2013 and net income was reported at just under $ 11 billion for the year.
The company’s price to earnings ratio of $ 14.6 and book value of 3.4 are slightly better than the industry average and analysts report that shares have an intrinsic value of $ 32.67, which is slightly below the current share price of $ 33.87 (from Wednesday’s close). While the company is well positioned for future markets and has heaps of cash to weather a market slowdown, it would appear that shares have reached their peak for now. Unless the R&D team releases a game changing solution or sales in Asia pick up, it would appear that Oracle is long-term buy and hold at best.