I’ll be honest here: Oracle Corporation (NYSE:ORCL) bored me. That’s the truth.
It was a boring company that made boring, mainly B2B products and saw boring (if steady) returns. In other words, Oracle stock was a great blue-chip investment, but not exactly the one that gets your blood racing. It’s the safety college, the fallback date to the prom. Reliable.
But now ORCL stock is starting to draw my attention for one simple fact: its acquisition of TikTok‘s American operations.
You’ll recall that TikTok invited some controversy earlier this year when it came into the sights of President Donald Trump. The company was known to be popular among younger audiences (making it a highly valuable social media player), but was also owned by Chinese company ByteDance Ltd.
Its ownership has been an issue where data security was concerned, as Chinese companies are virtually defenceless against government intrusion. If the Chinese government, in other words, wants a company on its soil to release data, then that company will release data. Couple that fact with the Chinese government’s less-than-stellar reputation when it comes to respecting privacy rights and you have an obvious cause for concern.
So, it was important that TikTok find a buyer for its U.S. operations…and quick, as it had been floated that the U.S. federal government would potentially ban the app.
This resulted in a bidding war of sorts between a variety of big-name tech companies, with Microsoft Corporation (NASDAQ:MSFT) being rumored to be among the top contenders for the hot, new social media app.
But it is Oracle Corporation, known for its operations mainly in the cloud space, which emerged the winner.
Valuations of TikTok’s U.S. operations run as high as $25.0 billion, but sources say that this figure may see a decrease, as China has imposed its own regulations regarding technology exports. (Source: “Oracle is said to win deal for TikTok’s U.S. operations,” BNN Bloomberg, September 13, 2020.)
But whatever the value of the U.S. TikTok operations ends up being, it’s a clear win for Oracle stock. Moreover, it single-handedly transformed ORCL stock from a ol’ reliable blue-chip with a steady dividend and modest returns into an overnight social media stock to watch.
In fact, the combination of reliable recurring revenue from its cloud and other legacy products and its instant entry into the social media royalty makes it a powerful tech stock to watch now.
Chart courtesy of StockCharts.com
While Oracle stock is only up about 14% in 2020, that’s still pretty impressive considering how the year has been derailed due to COVID-19.
Yes, other tech stocks have performed extremely well (ones that we’ve profiled often on this website) and made ORCL stock’s gains seem minor in comparison, you have to remember what it is that Oracle stock gives you as an investor.
This isn’t a tech stock in an emergent industry hoping to capitalize on some technological revolution in the near future.
No, this is a blue-chip stock that gives investors a solid stream of gains due to its impressive established revenue sources and solid dividend (more on that below), while showing steady growth year over year.
In essence, ORCL stock was a retiree’s dream: a reliable company that ekes out gains year after year. A company that won’t leave you shaking in the night hitting refresh on the stock charts every morning.
But the downside was that you didn’t have the same kind of return-on-investment that other, more exciting (if volatile) companies in the tech market had.
That’s all changed with Oracle Corporation’s acquisition of TikTok U.S. And it couldn’t be coming at a better time.
This is a year when investors could use a little bit of stability in their lives. Oracle stock provides that and now has the added bonus of the potential growth that TikTok could provide. The deal exposes an already stable stock to an emergent market, while not loading up ORCL stock investors with the risk usually endemic to the industry. That’s because, while TikTok is big in the U.S., its size is small relative to Oracle stock’s larger cloud business.
But the upside is that TikTok has the ability to soar high. After all, it’s the hottest new social media platform among younger people, and that in turn makes it a hot target for investors.
Of course, social media stocks are notoriously volatile, as the consumer base is a fickle bunch, prone to swarming new apps in huge waves and receding just as quickly. That usually means that huge gains and deep losses could be felt in relatively short periods of time.
ORCL stock, however, could provide a nice line of stability, with its core business acting as a bulwark against the riskier aspects of the social media market, while the growth potential of TikTok provides the company with an avenue towards growth that it has not had for years.
This is a very good marriage between two different industries. And it’s one that has instantly catapulted Oracle stock onto my tech stock list, if the company does close the deal.
And, as mentioned earlier, the added benefit of having a solid yearly dividend of 1.61% means that you can grow your profits even when the stock isn’t seeing massive gains.
Larry Ellison, co-founder of Oracle Corporation, was one of several billionaires to see their massive hordes of wealth skyrocket rather than decline during the pandemic. (Source: “Three Bay Area CEOs’ wealth grows by $44 billion during coronavirus pandemic: report,” Mercury News, May 21, 2020.)
And all those gains came before he added TikTok to Oracle Corporation.
What that tells us is that ORCL stock was hot before this massive addition. With it, Oracle stock has instantly become a must-watch company in the tech stock market.