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Oracle Focuses Cloud Effort on MarTech

Posted on Monday, Jan 11th 2016

According to Gartner, marketing technology is one of the fastest growing areas of the $1 trillion enterprise software market and CMOs are expected to spend more than CIOs by 2017. Oracle (NYSE: ORCL) has started the new year with the announcement of its plans to acquire web tracking company AddThis. AddThis will become a part of Oracle’s Data Cloud business and will be used to enhance its marketing cloud efforts—an area that has been the focus of its past few acquisitions. 

Oracle’s Financials

Oracle’s second quarter revenues were down 6% over the year to $9 billion, missing the analyst revenue estimate of  $9.06 billion. Net income fell to $2.2 billion or $0.51 per share from $2.5 billion or $0.56 per share last year. Non GAAP EPS was $0.63, ahead of the market’s projected earnings of $0.60 per share.

By segment, total cloud revenues were up 26% to $649 million. Cloud SaaS and PaaS revenues were up 34% to $484 million and Cloud IaaS revenues were up 7% to $165 million. Total On-Premise Software Revenues were $7 billion, down 4%. Total Hardware Revenues were $1.1 billion, down 16%. Total Services Revenues were down 8% to $861 million.

Oracle ended the quarter with $58.6 billion in cash and marketable securities. It also declared a quarterly cash dividend of $0.15 per share of outstanding common stock.

For the third quarter, Oracle expects revenue to range from zero to a positive 3% and EPS between $0.63 and $0.66.  SaaS and PaaS revenue is expected to grow between 49% and 53%. Cloud IaaS revenue is expected to grow between 3% and 7%. Total cloud and on-premise software is expected to grow 3% to 4%. Oracle expects fiscal year 2016 to be a trough year for profitability, as it moves to the cloud. It expects SaaS and PaaS gross margins to materially improve in the second half and exit the year between 55% and 60%.

Oracle’s AddThis Acquisition, What Could Be Next?

AddThis tracks activity data of 1.9 billion monthly unique visitors and over 15 million mobile and desktop web domains. Founded in 2004 in Virginia, AddThis had raised $73 million from a large group of investors that included Steve Case  Ted Leonsis, NEA, IVP, SV Angel, and Novak Biddle. Terms of the deal were not disclosed, but a TechCrunch article estimates the deal to range between $100 million and $200 million.

In this space, Oracle has over the past few years, acquired marketing cloud company Maxymiser, data broker company DataLogix, data management platform BlueKai, Eloqua, and Responsys. Another interesting prospect in the space for Oracle would be Marketo, which had annual revenue of $150 million in 2014 and is currently trading at a market cap of about $1 billion.

Oracle has recently been upgraded to a Buy rating by Evernote ISI, maintaining a $44 price target on its stock. In its research note, it says,

“Given the lack of near-term catalysts, we expect our more positive view on the stock to play out over the next few quarters, not the next few months, but if Oracle can string together a couple of in-line quarters and the positive trends in the cloud business persist, we believe that there is an opportunity for the shares to rebound in 2016, after declining 19% in 2015…Sentiment is already terrible so any lifts from Oracle Database 12c Release 2, a higher dividend payout, or increased merger-and-acquisition activity are essentially call options at this point.”

FBR Capital Markets analyst Daniel Ives had earlier said that Oracle needs to make acquisitions to fuel growth in its cloud business and Splunk, Tableau Software, Netsuite, and Workday could be game changing acquisitions.

I also think new age database competitors MongoDB and DataStax could be interesting prospects for Oracle. According to IDC, the global Big Data market will be worth $16 billion in 2016. While the market is still dominated by SQL-based databases, there is also a rapidly growing demand for the NoSQL databases where MongoDB has a stronghold. DataStax is a real-time Big Data platform built around Cassandra. You can read my interview with Jonathan and Matt on their early stage, and Thought Leaders in Big Data with Billy Bosworth here.

Oracle’s stock is currently trading at $34.65 with a market cap of $145.5 billion. It is recently hit a 52-week low of $34.61 while its 52-week high was $45.33 in June last year.

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