Few stocks suffered from resisting the cloud as fiercely as Oracle (NASDAQ:ORCL) stock. Now that Oracle has surrendered, Oracle stock is benefiting.
Even after it began building data centers, Oracle sought every proprietary advantage, a contrast with the cloud’s open source ethos.
But gradually Oracle has been pulled into the cloud mainstream. The move accelerated after it bought cloud application company NetSuite for $9.3 billion in 2016. CEO Larry Ellison helped fund NetSuite in 1998. His fortune is now estimated at $116.5 billion, much of it in ORCL stock.
Cloud Wars estimates $2 billion of Oracle’s $13 billion in revenue last year came directly from cloud. Its 2021 capital budget was estimated at over $2 billion. This has helped the stock to a 59% gain in the last year, 37% just since January.
Before committing to the cloud, ORCL stock was almost as moribund as that of IBM (NYSE:IBM). It has only begun outperforming the average S&P 500 stock in the last year.
Oracle’s success is proof that what makes the big cloud companies special isn’t their services, but their data centers. While there remain many big companies like Adobe (NASDAQ:ADBE) content to rent the clouds, Oracle shows the market now prefers cloud owners. Oracle boasts cloud service in 30 regions around the world, although not all services are available in all regions.
Oracle has focused on “hybrid cloud,” services where public data centers are supplemented by corporate sites. Research firm IDC estimates hybrid cloud adoption has doubled in the last 12 months. Oracle has an advantage in that its database technology has enormous profits and market share. It created a place for itself simply by investing some of that cash flow in the cloud business.
Oracle’s earnings report for May, the fourth of its 2021 fiscal year, showed net income of $4 billion, $1.37 per share fully diluted, on revenue of $11.2 billion. CEO Safra Catz called it a “blowout quarter” across the board. She also said Oracle would double capex spending to $4 billion in fiscal 2022.
Oracle is next due to report Sept. 13, with earnings of 97 cents per share expected on revenue of $9.77 billion. There’s a “whisper number,” a hoped-for expectation, of $1.01 share in earnings.
Not Easy to Love
Analysts are only slowly changing their view. Tipranks has 17 analysts following the stock, and only four suggesting you buy it.
That’s not the way our Muslim Farooque sees it. He says Oracle’s Enterprise Resource Planning (ERP) application is especially strong, winning “virtually every competitive bid.” In the most recent quarter, Oracle Cloud saw two new customers for every existing customer who upgraded.
Louis Navellier agrees it’s not too late to buy Oracle. Even after its big gain over the last year, he writes, the price to earnings ratio is still under 20. Navellier now considers Oracle a premier cloud service provider. Its market share is small but growing.
The Bottom Line on ORCL Stock
While government policymakers are desperate to regulate the services of Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG), Amazon (NASDAQ:AMZN) and Facebook (NASDAQ:FB), their market advantages may not be permanent.
Technology costs continue to fall. This makes it increasingly cost-effective for large vendors to build out their own cloud infrastructure rather than rent it. The marketplace is approving of such moves, as is the stock market. Oracle’s past as a cloud and open source opponent seems forgotten as its enterprise customers, slow to jump on the cloud bandwagon, turn to it as an easy on-ramp.
The lesson is clear. If you have the cash flow to build a cloud, do it. The market will reward you.
On the date of publication, Dana Blankenhorn held long positions in AAPL, MSFT and AMZN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Living With Moore’s Law: Past, Present and Future available at the Amazon Kindle store. Write him at firstname.lastname@example.org or tweet him at @danablankenhorn. He writes a Substack newsletter, Facing the Future, which covers technology, markets, and politics.