If you had invested $30,000 in Oracle (NYSE: ORCL) 30 years ago and consistently reinvested your dividends, your investment would be worth a whopping $2.43 million today. From fiscal 1993 to fiscal 2023 (which ended this May), the database software giant's annual revenue grew at a compound annual growth rate (CAGR) of 12% from $1.5 billion to $50 billion, while its net income increased at a CAGR of 16% from $98 million to $8.5 billion.
Three strategies drove Oracle's steady growth. First, it maintained its early mover's advantage and dominance of the database software market. Second, it bounced back from some bad business decisions in the 1990s (including a misguided bet that network computers would overtake personal computers) by expanding its ecosystem through big acquisitions. Lastly, it transformed its on-site software into cloud-based services.
As Oracle grew, its free cash flow soared and enabled it to buy back more than half of its shares over the past three decades. It also started paying dividends in 2009. Those shareholder-friendly strategies turned it into a mature tech stock which is often owned for stability instead of growth -- but could it deliver more millionaire-making gains in the future?
The mathematical path toward another million dollars
Let's say you missed Oracle's previous rally but plan to invest $30,000 in the company today. Assuming its valuations remain stable, it would need to grow its earnings at a CAGR of 12% over the next 30 years to turn that investment into $1 million.
That target might seem achievable relative to Oracle's growth rates over the past 30 years, but its growth has actually cooled down significantly over the past decade. From fiscal 2013 to fiscal 2023, Oracle's revenue only grew at a CAGR of 3% -- while its constant buybacks boosted its adjusted earnings per share (EPS) at a higher CAGR of 7%.
That slowdown occurred even as Oracle acquired a long list of companies -- including the cloud software giant NetSuite for $9.3 billion in 2016 and the healthcare IT leader Cerner for $28.3 billion last year -- to expand its portfolio of cloud-based services. Nevertheless, it continued to grow as the broader cloud market weathered the pandemic, geopolitical conflicts, rising interest rates, and other macro headwinds over the past three years.
From fiscal 2023 to fiscal 2026, analysts expect Oracle's revenue to grow at a CAGR of 9% as its adjusted EPS rises at a CAGR of 33%. We should take those estimates with a grain of salt, but they suggest the overall economy will warm up as Oracle continues to expand its higher-growth cloud-based services. Therefore, its growth could stabilize and accelerate again over the next three decades -- so it still has a narrow but viable path toward generating millionaire-making gains.
A lot could happen over the next 30 years
If Oracle turns $30,000 into $1 million again, its market cap would grow from $317 billion to $10.6 trillion. That valuation might seem unrealistic by today's standards, but it had also seemed impossible for tech companies to reach trillion-dollar valuations back in 1993. In addition, inflation would make a $10 trillion market cap a lot less impressive in 2053.
For now, investors should focus on the growth of Oracle's cloud-based services, which accounted for 37% of its top line in its latest quarter. The growth of that closely watched segment -- which is currently driven by its OCI (Oracle Cloud Infrastructure) services, NetSuite and Fusion ERP (enterprise resource platform) services, and Cerner's healthcare cloud services -- needs to keep offsetting the slower growth of its on-premise software.
Oracle still faces stiff competition from public cloud leaders like Amazon Web Services (AWS), Microsoft Azure, and Alphabet's Google Cloud Platform (GCP). But on the bright side, the global cloud computing market could still expand at a CAGR of 17% from 2023 to 2032, according to Precedence Research, so there could be plenty of room for these market leaders to grow without trampling each other.
Oracle should provide a good mix of stability and growth
Oracle might make you a millionaire on its own over the next few decades. But other higher-growth tech stocks might hit that target with more certainty in a shorter time, and Oracle arguably isn't as compelling a cloud play as Amazon, Microsoft, or Alphabet. In other words, Oracle still provides a good mix of stability and growth throughout bear and bull markets, but investors should maintain realistic expectations for its longer-term returns.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Leo Sun has positions in Alphabet and Amazon. The Motley Fool has positions in and recommends Alphabet, Amazon, Microsoft, and Oracle. The Motley Fool has a disclosure policy.
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