WT, congrats on your Cool Post. Following the link, I was
led here to see what your point was regarding Oracle's
earnings and the high amount of non-recurring gains
involved.
Got curious, so I did a little analysis on ORCL operating
income. This excludes the securities gains, extraordinary
items, and income taxes. The underlying business strength
(or weakness) should be showing through when you look at
operating income.
Bear with me, and take a quick overview of the trends:
(Sorry about the alignment....not my strngth!)
Oracle: Selected Financial Results
*********************ANNUAL*********************
% of
FYE 5/96 % FYE 5/97 % Prior Period
Revs 4,223 100.00% 5,684 100.00% 134.60%
Op Exp 3,318 78.57% 4,421 77.78% 133.24%
Op Inc 905 21.43% 1,263 22.22% 139.56%
% of % of
FYE 5/98 % Prior Period FYE 5/99 % Prior Period
Revs 7,144 100.00% 125.69% 8,827 100.00% 123.56%
Op Exp 5,900 82.59% 133.45% 6,954 78.78% 117.86%
Op Inc 1,244 17.41% 98.50% 1,873 21.22% 150.56%
% of
FYE 5/00 % Prior Period
Revs 10,130 100.00% 114.76%
Op Exp 7,050 69.60% 101.38%
Op Inc 3,080 30.40% 164.44%
***************LATEST QUARTER******************
Quarter Quarter % of
Aug-99 % Aug-00 % Prior Period
Revs 1,985 100.00% 2,262 100.00% 113.95%
Op Exp 1,639 82.57% 1,604 70.91% 97.86%
Op Inc 346 17.43% 658 29.09% 190.17%
Here's what I see:
1. Year over year Revenue growth is not good. 15-35%,
and appears to be slowing. This is Oracles Achilles heel.
2. Larry has recently appeared on the covers of several
business mags bragging about squeezing costs out of the
business. He has a right to brag. Holding growth in costs
to less than the growth in revenues in every period except
FYE May 98. Even achieved an outright decline in total costs
in the latest quarter versus the prior year.
3. Combining the two, operating income is smoking:
FYE 5/1997 +39.56% over prior year
FYE 5/1998 -1.5% under
FYE 5/1999 +50.56% over
FYE 5/2000 +64.44% over
Qtr 8/2000 +90.17% over prior year
Here are some reasons why I am long Oracle:
1. Oracle is the Gorilla of the enterprise relational
database. No contender is in sight that can take that from
them. Even with poor leadership and management turmoil, it
takes a long time to undo the value chain that forms around
the gorilla.
2. They are moving their applications out onto the web. The
next standards battle will take place in enabling access
anytime, anywhere, any device. I like their odds to extend
their reach.
3. The applications market certainly won't fall into their
lap, but they do have some advantages in offering a
one-stop source for corporate solutions for Database,
Financials, ERP, CRM, eCommerce, etc.
4. Larry Ellison is a leader that many love to despise. But
he is determined to be the richest man in the world, and I
am betting that he will make his goal.
So, what does Oracle need to do to make for a great
investment?
If they execute moderately well in applications, we should
see a moderate resumption in top line growth.
Result: decent stock performance.
If they can extend with an enterprise application bundle,
just like Microsoft was able to do with their Microsoft
Office bundle, the result will be explosive.
If they continue to muddle along, with database being their
only area of dominance, then we will will probably see
your price point of $15 (ouch!)
Good investing,
Brian |
