For many investors, Oracle Corporation (NYSE:ORCL) is an aging institution in a rapidly evolving technology sector. While no one questions their technical and business acumen, ORCL stock appears increasingly irrelevant. This is especially the case due to new-guard competitors, such as salesforce.com, inc. (NASDAQ:CRM) and Amazon.com, Inc. (NASDAQ:AMZN), dominating the cloud.
But I felt that, from a longer-term perspective, the naysayers were missing the forest for the trees. Sure, ORCL stock has experienced considerable volatility and choppiness this year. However, the markets have plenty of excuses at this juncture not to move higher. It’s not just Oracle that has had difficulty sparking upside momentum.
Furthermore, Oracle has an elite reputation in database management and enterprise resource planning (ERP) systems. As of February 2018, Oracle offers the most popular database application, followed by MySQL, and Microsoft Corporation’s (NASDAQ:MSFT) SQL server. In terms of ERP systems, it’s a robust, three-way race among Oracle, Microsoft and big-business king SAP SE (ADR) (NYSE:SAP).
But at the end of the day, it’s performance that matters to shareholders. This is where ORCL stock gets dicey for prospective buyers. We all know that Amazon is enjoying yet another brilliant showing in 2018. Microsoft shares are up 17% year-to-date. Even boring SAP has gained nearly 6%.
ORCL stock? Databasing and cloud-computing is all it does, and yet shares are disappointingly down almost 4% YTD.
To loosely paraphrase our own Bret Kenwell’s write-up on the company, Oracle is a solid institution. Unfortunately, some of its numbers are a bit on the soft side, which explains the volatility. Furthermore, other competitors, namely Microsoft and Salesforce, offer better alternatives in this sector. And let’s face it: sales growth lags expectations.
Still, despite these challenges, I’m long-term bullish on ORCL stock for these three reasons:
1) ORCL Stock Benefits From SAP Partnership
In prior articles highlighting Oracle, I countered the argument that far-sexier names like Amazon or Microsoft dominate the cloud. On paper, this is the case, but their respective platforms are typically better suited for smaller businesses. Oracle, on the other hand, plays with the big boys.
A confirming example is Oracle’s strategic partnership with SAP. While SAP is the ERP king, several of its clients run SAP applications on Oracle platforms. This was exactly the situation when I worked for Sony Corp (ADR) (NYSE:SNE). With large, multinational organizations, going with anything less than the best is simply not an option.
According to Oracle’s website, “over two-thirds of all mid-size to high-end SAP customers use Oracle Database.” What this equates to is that the company is winning with reputable, high-dollar clients, such as their deal with AT&T Inc. (NYSE:T).
It’s obvious that Oracle’s platforms and business solutions are tailor-made to handle the most strenuous requirements. While others are winning the quantity game, Oracle is winning on quality. Over time, I believe this should positively impact ORCL stock.
2) Oracle Offers Scalability for All Customers
While Oracle, as I just mentioned, has a “high-brow” reputation, this doesn’t mean it can’t win with smaller customers. Over the years, the company has expanded substantially over its primarily database-driven business. Today, you can find several business solutions that are scalable as your company grows.
In fact, Panorama Consulting Solutions argues that Oracle is situated ideally from a marketing point-of-view. While SAP dominates the biggest companies in the world, and Microsoft caters largely to small businesses, Oracle can play the middle of the field. Applications such as E-Business Suite and JD Edwards has broad appeal, ranging from large companies to growing, mid-tier names.
Moreover, this dynamic isn’t likely to change soon, which bolsters the case for ORCL stock. Try as it might, SAP just isn’t equipped to punch downhill. And customers primarily recognize Microsoft as a consumer-level solution. Though the company would like to drive uphill, it faces resource and professional-networking challenges.
Essentially, Oracle can sit and let the customers come to it, which they will. It’ll take some time, which is why I articulate the longer-term perspective. However, ORCL stock will eventually benefit from the consumer-market situation.
3) Old Dog Willing to Learn New Tricks
As I alluded earlier, a common knock against ORCL stock is that it’s an old dog in an evolving ecosystem. But that doesn’t mean old dogs can’t learn new tricks. What’s encouraging for me is that management displays the hunger and drive characteristic of younger organizations.
A prime example of this is the company’s offering of blockchain solutions. Understandably, whenever the layperson hears the term blockchain, they immediately think about cryptocurrencies. I readily admit that among InvestorPlace writers, I probably contributed the most to this sentiment.
But the blockchain has many more practical uses than merely making people rich. Oracle has leveraged this groundbreaking technology to offer faster and more secure business platforms than was possible with prior methodologies.
It’s an underappreciated component of ORCL stock, but a viable one nonetheless. Indeed, most of Oracle’s investment story is underappreciated, which is why I believe in its potential.
As of this writing, Josh Enomoto is long SNE.
