Oracle's Abundant Cash Balance Provides Room for Acquisitions

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Oracle ( ORCL ) is the largest player in the database software market, but the company also sells middleware and applications software. The company competes with Microsoft ( MSFT ) and IBM ( IBM ) in the database software market, and also SAP ( SAP ) in the applications software market. After acquiring Sun Microsystems in early 2010, Oracle became a hardware player as well, selling enterprise servers and storage hardware. In this market, Oracle competes with IBM, EMC ( EMC ), NetApp (NTAP), HP (HPQ) and Dell (DELL).

Oracle has made a number of acquisitions over the last few years. Here we analyze Oracle's cash position and whether it allows Oracle to make a few more strategic acquisitions in order to grow its business. We estimate that Oracle's software products account for 86% of the company's stock value. Our price estimate for Oracle stock stands at $38.16 , roughly 17% above market price.

See our full analysis and $38.16 price estimate for Oracle

Oracle's Cash Position Allows for More Acquisitions

Oracle has made a number of acquisitions in the past, of which we've listed a few key examples below.

Acquisitions Amount When?
PeopleSoft $10.30 billion Jan-2005
BEA Systems $8.50 billion Jan-2008
Sun Microsystems $7.40 billion Jan-2010
Siebel Systems $5.85 billion Jan-2006
Hyperion Corp. $3.30 billion Mar-2007

Oracle has a roughly $25 billion cash balance on its balance sheet, including cash, cash equivalents and short-term marketable securities. Oracle also has a significant amount of debt (around $17 billion) on its balance sheet, which means its net cash position is around $8 billion. However, if Oracle can make use of the cash balance to make acquisitions instead of paying off debt, it could open up a lot of strategic opportunities.

Could Salesforce.com be One Such Opportunity for Oracle?

Salesforce.com's (CRM) market cap is around $19 billion, and Oracle could utilize its large cash balance towards a possible acquisition attempt. Salesforce.com is a cloud computing player that specializes in providing client relationship management (CRM) as well as other applications. The cloud computing space is an area expected to generate substantial growth over the coming years. Oracle is not currently a major player in the cloud computing market and hence Salesforce.com could provide it with ample growth opportunities in applications software.

Additionally, Salesforce.com has recently forayed into the database software market with the introduction of cloud-based database software named database.com. Oracle is already the dominant player in this market but could leverage Salesforce.com's technical expertise in the cloud market to become an even bigger player in the database software market.

Do you foresee any other acquisitions on the horizon for Oracle that could raise its growth prospects and generate significant return on the company's current cash balance? Let us know your thoughts by providing feedback in the comment box below.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: EMC , IBM , MSFT , ORCL , SAP

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