Back in the day, Oracle (
ORCL
) CEO Larry Ellison viewed IBM (
IBM
) as both an inspiration and a chief competitor. And over the
past decade, Ellison has built a highly successful facsimile of
IBM at its pinnacle by acquiring software and hardware companies
at a breakneck pace, packaging and selling them together, milking
every last cent of profit out of them while cutting costs and
then riding the tailwinds of lucrative maintenance contracts to
bankroll his yacht and island-buying habits.
For the better part of the past six or seven years -- until
recently -- Ellison and Oracle did everything they could to
disavow the relevance of on-demand software applications and
their providers -- most notably Salesforce (
CRM
). But reality got in the way of his dismissive comparisons of
software-as-a-service staying power to the fleeting popularity of
acid-washed jeans.
And even if a compelling argument can be made that Salesforce
and other cloud computing stocks are recklessly overvalued,
there's no denying the popularity of their wares among the
enterprise clients Oracle once owned, took for granted and now is
desperate to reclaim or at least retain.
Along those lines, it's important to note that Workday, a
provider of on-demand human capital management software and
another thorn in Oracle's side, is prepping a $500 million-plus
IPO of its own in the near future. In the past three months,
Oracle shares are up nicely and much of these gains can be
partially attributed to Oracle's cloud computing about-face. Just
as IBM, at the height of its powers, ignored the rise of the PC
and, later, PC vendors were in denial about the looming threat
from mobile phones and tablets, Oracle was too infatuated with
the installed software model to be bothered with this on-demand
mishagas.
ORCL
data by
YCharts
The other part is that, just like IBM for decades, Oracle has
become something of a safe haven for buy-and-hold investors -- a
name they know and can trust (usually) for steady if
unspectacular gains over a prolonged period of time, as seen in a
stock chart
.
ORCL
data by
YCharts
Flash forward to a couple weeks ago when Oracle somewhat
"disappointed" investors with another in a series of more
frequent sales disappointments (revenue down 2% year-over-year;
has now missed its own guidance in five of the past nine
quarters) when the company touted the fact that "new software
licenses and cloud software subscriptions revenue was up 5% to
$1.6 billion" in the quarter, that its cloud business is closing
in on a $1 billion annual run rate and that this cloud fad thing
would (along with engineered systems) "drive Oracle's growth for
years to come."
Well, it better because the butter that Oracle and its
shareholders have relied upon for years is starting to turn. JMP
Securities analyst Patrick Walravens is forecasting a mere 6%
increase in maintenance revenue in the current quarter -- down
from a 15% surge in the year-ago quarter. Clearly, growth at
Oracle's size is hard to come by.
ORCL Revenue TTM
data by
YCharts
Along with spending more than $3.4 billion to snap up
on-demand software firms Taleo and RightNow Technologies this
year, Oracle this week unveiled plans to add
infrastructure-as-a-service to the Oracle Public Cloud to take on
the likes of Amazon (
AMZN
) and Google (
GOOG
) and said it will begin building and operating cloud services
inside client data centers.
"We think we are ideally positioned with database software,
and middleware and applications all in the cloud," Ellison
said.
But to investors, this revamped strategy and newfound
appreciation for cloud computing might be beside the point.
Cowen Group's Peter Goldmacher recently told MarketWatch.com
that Oracle's recent success and popularity may be more a case of
choosing between the lesser of multiple evils.
"People think 'I can own this name. It's not expensive. I
don't love it, but I hate it less than other mega-cap tech
names,'" he said, a sentiment shared by many investors for many
years not so long ago about Big Blue.
Larry Barrett is an editor for the
YCharts Pro Investor Service
which includes professional
stock charts
,
stock ratings
and
portfolio strategies
.