Oracle Corporation (ORCL): Could This Deal Help Oracle Stock?

Oracle Corporation
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Oracle Stock in Search of Higher Growth

Oracle Corporation (NYSE:ORCL) has been struggling to grow for quite some time, and ORCL stock has been losing ground. The legacy tech player is on a buying spree and has acquired companies in the cloud-computing area to compete with the likes of salesforce.com, inc. (NYSE:CRM) and Amazon.com, Inc.’s (NASDAQ:AMZN) “Amazon Web Services.”

However, the latest deal by a rival could change the way Oracle has been playing the cloud game. As per media reports, the European Union (EU) antitrust authorities are likely to clear Microsoft Corporation’s (NASDAQ:MSFT) $26.0-billion acquisition of LinkedIn Corp (NYSE:LNKD). (Source: “EU Likely to Clear Microsoft-LinkedIn With Conditions,” The Wall Street Journal, December 1, 2016.)

A report by Forrester Research, Inc. (NASDAQ:FORR) earlier had placed Oracle (ORCL) sixth in the list, behind Microsoft Corporation, salesforce.com, inc., International Business Machines Corp. (NYSE: IBM) and Alphabet Inc (NASDAQ:GOOG, GOOGL). Amazon Web Services was the leader in public cloud infrastructure as per the report.

ORCL stock has significantly underperformed over the last year, posting returns of about one percent, as compared to over seven percent returns by the S&P 500 over the same period. The stock has also lagged behind its peers.  

Oracle stock had suffered after the company announced its quarterly results in September. Its earnings missed expectations and the only silver lining was the rise in cloud sales. Its traditional software business has continued to decline and, amid this backdrop, the cloud business assumes great importance.   

The tech giant understands this and is trying to grow inorganically in this segment. The company had closed its acquisition of NetSuite Inc (NYSE:N) last month. The transaction was valued at $9.3 billion. Oracle expects this acquisition to help address a wider market with an enhanced product portfolio.

In November, the company also announced its proposed acquisition of Dynamic Network Services, Inc. (also known as Dyn), the leading cloud-based Internet performance and DNS provider that monitors, controls, and optimizes Internet applications and cloud services to deliver faster access, reduced page load times, and higher end-user satisfaction. (Source: “Oracle Buys Dyn,” Oracle Corporation, November 21, 2016.)

If these acquisitions help Oracle become a dominating player again, it will lift ORCL stock.

As Oracle’s rivals like Microsoft and salesforce.com look to acquisitions in order to grow in this competitive space, the company has its task cut out for it.

Oracle stock has an average price target of about $44.00, and it currently trades at $38.50, which means there is further upside potential of almost 14%. However, investors are going to focus on how these acquisitions add value to Oracle stock. As the company announces its quarterly results this month, all eyes will be on Oracle CEO Larry Ellison’s plans to bring growth back to the company and ORCL stock.