Oracle Corporation (NYSE:ORCL) founder, executive chairman and chief technology officer Larry Ellison drew a lot of press comments last week with his trash-talking of Amazon.com, Inc. (NASDAQ:AMZN) and its Amazon Web Services (AWS) public cloud. At Oracle’s OpenWorld event Ellison said his company’s new “bare metal” cloud is going to cost less, do more and generally make customers forget Amazon was even in the game. Some analysts are putting buy ratings on ORCL stock based on the Ellison media offensive.
Oracle stock has managed to hold its level of nearly $39 per share over the last five days, although the S&P 500 is up 0.5% during that time.
At its current price, Oracle has a market-matching price-to-earnings multiple of 18.4, and its dividend of 15 cents per share delivers a yield of 1.55.
AMZN stock, meanwhile, has a P/E of 200, is up 3% over the last five days of trading, and has held the $800 per share level for the last three trading days. So should you take your Amazon profits and buy ORCL stock?
In my view, no.
Orcale: What’s New Under the Hood
Oracle built its new cloud infrastructure with staff hired from Amazon and Microsoft Corporation (NASDAQ:MSFT), the current leaders in selling public cloud. It has the advantage of having been created on a “clean slate.” It uses software-defined networking logic to create “off-box virtualization” that allows provisioning to be addressed in front of computing jobs rather than on-the-fly.
The result is that ORCL can claim its technology offers corporate customers major benefits against what AWS offers, and the message is aimed mainly at large corporations who have used Oracle equipment and databases in the past, but still face skeptical boards of directors asking why they spend so much on ORCL, while Amazon is so cheap.
The market being addressed is basic “data warehousing,” in which large amounts of unstructured data, like web logs, are analyzed in real-time to adjust corporate strategies. The picture remains incomplete and the offering is a “minimum viable product,” some technology analysts say.
ORCL Stock Is a Day Late
Ellison’s problem is that the cloud ship has already sailed, and even if Oracle could catch up, the prize may not be worth the powder.
AWS has grown by offering self-service public cloud infrastructure, with prices starting at free, that can be scaled and built on until a company like Netflix, Inc. (NASDAQ:NFLX), which barely existed a decade ago, can itself become part of the Fortune 500. It is an entrepreneur’s cloud, not a corporate cloud.
Second, even if ORCL were right, and it could overtake AWS in the public cloud, AWS is a $10 billion per year business. Oracle is a $37 billion per year business, and the corporate customers it moves to its bare metal cloud are going to be closing-out existing Oracle systems in order to go there. Cloud saves money, it reduces computing costs, and it transforms computing from something you buy like a house to something you buy like electricity. Oracle’s business model is not equipped to handle that change.
ORCL’s hope is that large enterprises that are just now looking at cloud are going to give Oracle another look, viewing the cloud race as a marathon and not a sprint. But even if cloud is a long game there should be no rush to sell AMZN stock and buy ORCL stock. We will see the change in quarter-to-quarter numbers, and shouldn’t buy the press release.
AMZN Stock: Stay With the Leader
All this is why traders have shrugged off Oracle’s announcement, which came after it disappointed investors with its latest quarterly earnings.
ORCL has called-out cloud competitors by name before. In recent years, it has specifically played the feud with Salesforce.com, Inc. (NYSE:CRM), which took an early lead in customer relationship management applications, and with Workday Inc (NYSE:WDAY), the leader in human resource management cloud applications. Since Workday’s 2012 IPO, it has delivered 150% of Oracle’s stock gains, and the price of Salesforce has nearly doubled.
The bottom line is that even Oracle optimists aren’t raising their price targets. Investors need to be from Missouri on this, and demand that ORCL show them progress in its numbers before they buy its product claims.
Dana Blankenhorn is a financial journalist who dabbles in fiction, his latest being The Reluctant Detective Travels in Time. Write him at email@example.com or follow him on Twitter at @danablankenhorn. As of this writing, he owned shares in AMZN and MSFT.