Time to Own ORCL Stock?
Is Oracle Corporation (NYSE:ORCL) finally making a comeback against salesforce.com, inc. (NYSE:CRM)? The ambitious upstart of IT services, Salesforce has vastly outperformed its peers in the last five years. CRM stock grew 125.69%, while ORCL stock only appreciated by 23.09%.
And yet Salesforce showed no profits during that time. The company disrupted the IT industry—there’s no doubt about that, but let’s not forget that it was running solely on the strength of its top-line growth. By contrast, Oracle was profitable and had slowing sales growth. What gives?
Investors were looking at the fundamental relationship between customers and their IT service providers. More businesses were choosing software-as-a-service (SaaS) companies instead of housing physical servers and storage facilities. They only wanted as much space as they needed. Flexibility became more important than autonomy.
This transition to flexibility as the point of competition perfectly explains why Salesforce outperformed Oracle. The two companies were polar opposites. Oracle was the “old guard,” an IT firm that hadn’t kept pace with the changing expectations of its consumers.
Maybe that’s because Larry Ellison was too busy building a $100-million boat to win the American Cup. I’m not saying that he shouldn’t be allowed to spend his money on stupid things, just that his attention could have been better applied. (Source: “Larry Ellison’s Oracle Team USA Faces America’s Cup Defeat,” Time, March 15, 2016.)
That being said, things are finally getting better for Oracle. The last few years weren’t great, but looking ahead at the coming few, it’s clear that ORCL stock is a better bet than CRM stock.
Oracle’s earnings numbers came out on March 15 and they were surprisingly good. The company managed to beat earnings expectations. On top of that, ORCL stock announced a $10.0-billion share buyback. ORCL stock was up 4.3% on the news. (Source: “ORACLE REPORTS GAAP EPS OF $0.50; NON-GAAP EPS OF $0.64,” Oracle Corporation Investor Relations, March 15, 2016.)
This is a strong one-two punch from Oracle. First off, the $10.0-billion buyback serves as a reminder that the company can afford it, while Salesforce can’t even cough up a dividend. And the numbers only get more attractive under closer inspection.
It appears that Oracle is taking the fight onto Salesforce’s territory. Revenue from its cloud computing division increased a whopping 57% over the last 12 months. (Source: Ibid.) Although it wasn’t enough to turn sales growth positive, investors expect SaaS to play a bigger role in Oracle’s business. The potential here is absolutely huge.
Oracle is embracing the idea of flexibility as the point of competition. That was really the only thing lacking in the firm. The company is even getting the market excited with some spectacular top-line figures in the SaaS business, which means it’s winning on two fronts. Not only is Oracle profitable, but it’s also expanding.
Salesforce can only match one of those claims. I would say Salesforce doesn’t make as much money as Oracle, but it doesn’t make any money at all. The company hasn’t had a profitable year in its whole existence.
It used to be that comparing CRM stock and ORCL stock was a growth versus profits equation. That’s no longer the case. Both are growing, but only ORCL stock offers dividends and buybacks as a sweetener. It’s a no-brainer, folks.