No TikTok deal is no problem for Oracle


Author: Jeffrey Taylor

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Oracle in partnership with Walmart planned to buy the US assets of the Chinese-owned viral video app, TikTok. With the exit of Donald Trump from the White House, this plan is now in the dumps. However, investors are seemingly unbothered by the turn of events. They’re still very much treating Oracle like it is a red-hot social media inventory.

Oracle Unaffected by deal and competitors

Compared to Facebook, Amazon, Apple, Netflix and Google (collectively known as FAANG), Oracle is a slow-growing tech company. The firm’s growth is also slow compared to competitors like Salesforce and Microsoft. Regardless of these facts, Oracle’s shares have gone above 25% this year and nearly 60% over the last 12 months.

Investors would have gotten decent or even spectacular news from Oracle’s quarterly reports after the closing bell on Tuesday. Analysts forecasted an increase of almost 6% in sales from last year. They also predicted a 9% increase in earnings per share.

However, sales were up 8%, exceeding the expectations of analysts. Earnings also went beyond estimates with operating profits increasing 5%.

Oracle’s stock performed better than almost all its Nasdaq competitors this year. It grew higher than Facebook, Amazon, Apple and Netflix. Google is the only FAANG inventory that surpassed Oracle at almost 40% so far.

Catz and Ellison, so far so good for Oracle

The firm has recorded a stable and aggressive increase in its subscription-based cloud enterprise.  The leadership of CEO Safra Catz and founder, chairman and CTO Larry Ellison has proved excellent for Oracle.

According to Nucleus Research analyst Trevor White, the firm “has proven to be more capable of reinventing itself as a modern, cloud-native provider when compared to similar competitors.”

Cowen analyst Derrick Wood is positive that the company will record “a solid quarter” due to “strength in cloud bookings.” He stated that it might not be a shock if Oracle issues guidance for the next quarter that meets or beats Wall Street’s forecasts.

Analysts worry

Not everyone is thrilled. Some analysts have expressed concern about Oracle’s trajectory. They worry that all the good cloud news is already baked into the stock price.

Jefferies analyst, Brent Thill, shares his perspective. He says Oracle shares are currently trading at their highest valuation, based on projected earnings going as far as four years into the future.  His worries are based on the fact that Oracle, with its high cloud presence, still lags behind Amazon, Microsoft, and Alphabet within the cloud sector.

A few other analysts worry that Oracle may lose its enviable momentum in its core database business.

UBS analyst, Karl Keirstead in a recent report, stated that “the dominant customer feedback remains a desire to reduce their Oracle spending by switching to cheaper databases.” According to him, there is “no fundamental support for the rally” in Oracle shares.

More than a few Wall Street analysts have stated their opinion that Oracle may continue using its money hoard to purchase back more stock. They believe the firm would do that to increase earnings per share.

That could be a sign. Oracle, much like the “old” software firm IBM, may turn out to be an extra mature tech company that cannot publish strong results from its actual enterprise.

“Growing earnings will become a different challenge in the future because it must be driven relatively more by core operations,” Mark Murphy, an analyst with J.P. Morgan Securities, stated in a recent report.

Now, it seems like Catz and Ellison have work cut out for them. They need to assure stakeholders that Oracle’s choice of sticking with database and cloud products will continue to pay dividends. Especially now that the TikTok deal is off the table.

Although the deal could have brought much-needed growth and a youth customer base to the company, its loss has not pulled Oracle back visibly. Clearly, investors appreciate Oracle’s expanding cloud momentum. The firm can take this as a win and retail traders can make a killing through platforms like eToro and Interactive Brokers.

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Jeffrey Taylor is a retired mechanical engineer who has an interest in all things financial, including emerging markets and cryptocurrencies.