This week’s note will begin by reiterating our bullish theme on the Natural Gas market. We hav...
Software Giant Poised for More Growth
08/21/2007 12:00 am EST
Vahan Janjigian, editor of Forbes Growth Investor, says Oracle’s aggressive acquisitions and new-product development should help it continue to gain ground in enterprise software.
Oracle (NASDAQ: ORCL) is the leading global provider of enterprise software, which is used to improve productivity and efficiency by managing information on an organization-wide level. The software can be tailored to each customer’s unique requirements and helps ensure the proper flow, management, and integration of all kinds of data and functions including inventory, product fulfillment, billing, and payment processing.
Almost 80% of ORCL’s revenues comes from the software business. About 41% of these software revenues consist of new software licenses, which grant customers the right to use the company’s software products. Offerings consist of scalable database and middleware grid products, which manage and support ORCL-developed and competing infrastructure products and applications.
Applications software helps enable the efficient management of core business functions. Products include customer relationship management (CRM) applications that manage billing, delivery, sales, and services solutions and enterprise resource planning (ERP) applications that automate and integrate important global business processes such as manufacturing, accounts receivable, purchasing, transportation, and human resources. The remainder of software revenues comes from software license updates and product support services.
The rest of the company’s revenues are derived from software support services, such as consulting services that help customers deploy ORCL’s software products; applications and maintenance services for customers deploying software products from a data center facility, and training, education, and certification programs.
ORCL’s recent success has largely been the result of its ability to integrate acquisitions and realize synergies [as it turns] to acquisitions to drive growth. It acquired PeopleSoft for $11.1 billion in 2005 in a well-publicized hostile takeover. It paid $6.1 billion in 2006 for Siebel Systems. Last quarter it paid $3.3 billion to acquire Hyperion Solutions.
Revenue contributions from these acquisitions are substantial, yet their true value lies in the breadth of products and services they provide. PeopleSoft significantly augmented ORCL’s ERP offerings. Siebel Systems instantly made ORCL a market leader in CRM software.
By acquiring companies with established expertise and brand awareness in key areas, ORCL has been able to speed its entry and growth into new and under-tapped markets. Cross-selling opportunities have led to market share gains at the [expense] of rivals such as SAP, IBM, and Microsoft. It very recently acquired Agile Software and plans to acquire Bharosa, Inc. soon.
Yet the company also continues to improve existing products. For example, it recently introduced the next generation Oracle Fusion Middleware and launched Oracle Database 11g, the latest version of its leading database software.
Fiscal 2007 total revenues rose 25% to $18 billion. The software and services segments gained 23% and 33%. Pro forma operating profit margin improved 39 basis points from the prior year to 40.76%, [while] pro forma net income jumped 25% to $5.31 billion or $1.01 per share.
(The stock closed just above $19 Monday, less than 10% below its 52-week high—Editor.)
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