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Oracle’s Future Cloud Acquisitions: Some Predictions

Posted on Wednesday, Oct 29th 2014

Earlier this summer, Oracle (Nasdaq: ORCL) announced the $5.3 billion acquisition of MICROS, a point of sale system for the restaurant, hospitality, and specialty retail stores industry. Analysts believed that this was just the beginning of many more acquisitions to come as they projected Oracle to spend nearly $15 billion-$20 billion in the next two years on inorganic growth. During the recently ended quarter, Oracle continued to make other smaller acquisitions to grow their presence within the cloud and software segments.

Oracle’s Financials
Oracle’s first quarter revenues grew 2.6% over the year to $8.6 billion, short of the Street’s estimated $8.78 billion. EPS of $0.62 was also short of the market’s projected earnings of $0.64 per share.

By segment, software and cloud revenues grew 6% over the year to $6.6 billion with software revenues growing to $6.58 billion and cloud revenues accounting for a much more modest $0.339 billion. Hardware revenues continued to fall as they registered a decline of 8% over the year to $1.17 billion. Services revenues fell 7% to $855 million in the quarter.

By region, revenues from the Americas improved 2.3% to $4.62 billion and EMEA grew 6.2% to $2.59 billion. Asia Pacific revenues fell 2% over the year to $1.39 billion.

For the current quarter, Oracle expects revenues to grow 2%-6% with an EPS of $0.66-$0.70 compared with the Street’s estimates of revenue growth of 4.9% and an EPS of $0.74.

Oracle’s Cloud Focus
Oracle continues to push aggressively within the cloud market. In the recently concluded annual Open World conference, Oracle released nearly 130 new products with a majority of the offerings focused on cloud and software. Currently, cloud-based services account for a mere 4% of Oracle’s revenues. Oracle plans to increase that over the next few years. As part of these plans, they are also willing to reduce infrastructure-as-a-service pricing to be more competitively priced with that of vendors like Amazon and Google.

Some of the new products include Oracle Software in Silicon Cloud that will provide developers with a ready-to-run virtual machine environment where they can install, test, and improve their code. The platform is powered by their latest SPARC M7 processor that will also help developers detect and prevent data corruptions and security violations.

They added six new Oracle Cloud Platform services that that will provide new functionality specifically for Big Data analytics, integration, process management, Java Platform, Standard Edition (Java SE), and Node.js for server-side JavaScript. Oracle claims that the new Oracle in the cloud will also simplify the process of transitioning with users able to move any database from their datacenter to the cloud almost like “pushing a button”.

Recently, they also announced several new services such as a community called Oracle Cloud Connection for information sharing and the expansion of Oracle Cloud Marketplace to include system integrators.

Oracle’s Acquisitions
As part of their acquisition spree, in July this year, Oracle announced the acquisition of TOA Technologies. TOA Technologies provides SaaS-based offerings focused on field service requests. Through their tools, companies can not only monitor real-time field service requests but also schedule representatives and then use business analytics to monitor and view inventories and predict service windows. The solution helps them optimize their field service staff and operations. Oracle plans to integrate TOA’s offerings with their Service Cloud and Oracle ERP cloud solutions to help organizations deliver higher operational efficiency and improved customer satisfaction levels. Terms of the acquisition were not disclosed.

Last month, Oracle announced the acquisition of Front Porch Digital for an undisclosed sum. Front Porch Digital is a provider of content storage management solutions that help companies migrate, manage, and monetize big volumes of digital media content including high definition films and TV shows, medical images and records, and real-time security monitoring feeds. Front Porch Digital has more than 550 customers worldwide with customers like A&E Television, BBC, Discovery Communications, US Library of Congress and NASCAR.

To get a sneak preview into some possible future acquisitions that Oracle could make, read 15 Private Unicorns I Am Tracking. On this list, Xactly, Adaptive Insights, Medallia, MongoDB, and DataStax ought to be on Oracle’s list of targets.

Oracle’s Management Change
Among other big news, Oracle also announced a change in their CEO as Larry Ellison stepped down from the position after 37 years at the post. Mr. Ellison has now become the executive chairman of the company and handed over the reins to two co-CEOs – Safra Catz and Mark Hurd. Oracle believes that the dual ownership model will work for them given that both the CEOs have already worked together effectively and that their strengths are more complementary in nature. Mark Hurd’s strength in sales operations is complemented by Safra Catz’s strength on the financial side. Some analysts still believe that in the future, Oracle would revert to a single CEO model.

Their stock is trading at $38.65 with a market capitalization of $171.27 billion. It touched a 52-week high of $43.19 in July this year.

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