Oracle's Upside to $37 Value from Google Patent Lawsuit

By Trefis Team,

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Oracle (NASDAQ:ORCL) filed a patent infringement lawsuit against Google (NYSE:GOOG) in August 2010 over the use of Java in Google's Android mobile operating system and is claiming billions in damages from Google. The latest filing by Oracle reveals that Oracle is demanding $900 million to $1.4 billion up front as well as 15% of the advertising revenue that Google earns from advertising on phones that run the Android OS.

We have a $37 price estimate for Oracle , which is around 10% ahead of the current market price.

Advertising on Android: A Billion Dollar Business

While Oracle's demands are not as audacious as reported earlier ($1.4 billion to $6.1 billion), they still amount to a huge number considering that the ad revenue Google earns from Android devices is expected to be close to $1.3 billion in 2012. Oracle claims that Google's use of Java in Android infringes a patent which it acquired through its acquisition of Sun in 2009.


Potential 25% Upside for Oracle Stock

While far from certain, if Oracle won this case against Google, its cash reserves would get a $1.40 billion boost ($0.28/share) and its Java licensing revenues would receive 15% of Google's Android ad revenues. We estimate Google's ad revenues from the Android platform will  increase significantly in the next couple of years touching $1.3 billion in 2012 and reaching $26.4 billion by the end of the Trefis forecasting period.

Oracle's 15% cut would boost its Java licensing revenue by almost $4-5 billion by the end of the forecasting period based on forecasts. Taking these factors into account, if Oracle wins the lawsuit, we would revise the Trefis price estimate upwards from $37 to $41.20, implying a 25% upside from its current market price. Even in the event of a settlement for a lower amount, Oracle could still see meaningful upside.

You can tweak the chart above to check the potential upside.

See our complete analysis of Oracle's Stock

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

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

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