Known for its breakthroughs in databases and software that analyzes business intelligence, Oracle Corporation (NYSE:ORCL), the world’s second-largest software company, is now becoming a big player in cloud-based services.
And if you’re not already, you should pay closer attention to Oracle stock.
Though smaller rivals like Salesforce.com, Inc. (NYSE:CRM) have garnered the lion’s share of the cloud software market, investors should latch onto Oracle’s underrated cloud potential, which bodes well for ORCL. As more businesses migrate to public and private clouds, Oracle stock will climb in value. In fact, Oracle grew cloud revenues 45% in the most recent quarter, thus positioning itself as a leader at the right time.
ORCL is starting to gain steam ahead of earnings, up about 4% over the past two trading days, though a 4% year-to-date loss still trails both the Dow Jones Industrial Average and the S&P 500. But as tonight’s Oracle earnings report nears, don’t expect this underperformance to last. ORCL has plenty of upside potential over the next 12 to 18 months.
What You Should Love About ORCL
Among various positives for the company, Oracle has developed more leverage with its customer base. The software giant “has the ability to provide a comprehensive cloud foundation as a key determinant for customers signing on the dotted line,” said Daniel Ives of FBR Capital Markets.
In other words, Oracle is building the sort of stickiness that makes its customers tough to leave, given that its cloud capabilities create a “one-stop shop” advantage. And not only does this bode well for Oracle’s other products, it will help the company navigate revenue headwinds caused by the strength of the U.S. dollar.
In the November quarter, for instance, Oracle’s 45% jump in its cloud business helped offset a 4% decline in its traditional software licenses revenue. And while the licenses revenue is still Oracle’s bread-and-butter business, ORCL’s improved diversification not only makes Oracle stock more valuable, it will create less volatility.
This means investors who place a bet right here are likely to win. And it’s a worthwhile bet, given the recent cloud-growth predictions by research firm IDC.
IDC expects spending on cloud-based big data and analytics solutions will soar not only in 2015, but also over the next five years, growing three times faster than traditional onsite server solutions. As I discussed in a report about SAP SE (ADR) (NYSE:SAP), “Hybrid on/off premise deployments, which is a combination of a public and private cloud solutions, will become a requirement on corporate networks,” says the firm.
Companies no longer want to manage their own servers onsite. Instead, they’re embracing the type of on-demand cloud service offered by Salesforce.com and Workday Inc (NYSE:WDAY) — a platform known as SaaS (software-as-a-service). And Oracle stock has made the cloud its top priority, prompting Morgan Stanley analyst Keith Weiss to set a 12-month price target of $50 — suggesting gains of 15%.
Combined with its consensus “buy” rating and average 12-month price target of $47.25, suggesting 11% gains from current levels, investors looking for a strong cloud bet should consider Oracle stock.
As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.
