In my (future) posts, I plan to skip over the basics and assume my readers are intelligent enough to pull up basic filings. However, a brief history of the company evolution would help set some context. Oracle has transformed itself several times since it was founded about 50 years ago (and uniquely so). It started as a relational database business, then began building enterprise applications such as e-business suite. What followed was a period of rapid consolidation - first in applications (e.g. Peoplesoft), then middleware (e.g. BEA, Hyperion, etc.), followed by an aggressive push into vertical specific software. When Oracle acquired Sun during the GFC, it gained several key assets that would later benefit the company: knowledge of how to operate a supply chain (think IaaS a decade later), Java and MySQL. What came next was a string of acquisitions to get the Company into the Cloud business. Let me pause here because my view is that the current phase and next phase will make sense in context of history and Microsoft.
For a company as levered as ORCL is, you're assuming one of the highest EV / FCF multiples it has ever traded at (outside of their massive share repurchases that the company executed during 2021 to make sure that Larry and Safra hit their $200MM+ performance grants, which vested at $80 / sh.), when they are the 3rd/4th best infrastructure provider, and their largest area of growth (OCI), is dilutive to margins (estimated to be ~30% gross margins). While I do agree that the downside should be relatively limited here, given their large, recurring, stable core revenue base, I think the upside is relatively limited at $80 per share.
As I think about this stock, and the timing of their medium-term guidance, I can't help but wonder why a company would provide 4-year forward looking guidance, when this is not something that they have done historically... do we think it may be to try and keep investor interest in their story as EPS and FCF diverge and they do not have as much financial flexibility to support their stock in the open market?
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For a company as levered as ORCL is, you're assuming one of the highest EV / FCF multiples it has ever traded at (outside of their massive share repurchases that the company executed during 2021 to make sure that Larry and Safra hit their $200MM+ performance grants, which vested at $80 / sh.), when they are the 3rd/4th best infrastructure provider, and their largest area of growth (OCI), is dilutive to margins (estimated to be ~30% gross margins). While I do agree that the downside should be relatively limited here, given their large, recurring, stable core revenue base, I think the upside is relatively limited at $80 per share.
As I think about this stock, and the timing of their medium-term guidance, I can't help but wonder why a company would provide 4-year forward looking guidance, when this is not something that they have done historically... do we think it may be to try and keep investor interest in their story as EPS and FCF diverge and they do not have as much financial flexibility to support their stock in the open market?
I like your writing. Would you be interesting in contributing to a bigger newsletter with thousands of readers already, for a fee? Email me, michael@tendies.af