Oracle Corp (NYSE:ORCL)

Oracle provides products and services that address enterprise information technology (IT) environments. IT deployment models include on-premise deployments, cloud-based deployments, and hybrid deployments.

Business Segments Highlights

• Cloud and license business
  • 84% of revenues and ~70% gross margin.
  • This segment includes cloud SaaS, PaaS and IaaS. License support revenues, which is our largest revenues stream.
• Hardware business
  • 8% of revenue and 40% gross margin
  • This segment includes Oracle Engineered Systems, servers, storage, industry-specific hardware, virtualization software, operating systems, management software and related hardware services including hardware support.

• Service business
  • 8% of revenue. 20% gross margin
  • This segment includes consulting services, advanced support services and education services.

Company growth/outlook

Oracle has a very stable revenue growth of 3% (after removing currency fluctuations). Furthermore trends in individual segments is also very stable. Cloud and license segment has been growing, hardware segment is falling and services segment is stable (as percentage of revenue). The overall growth comes from it’s license support business which is very stable and highly predictable. Oracle has also been heavily repurchasing shares for the past 5 years and will continue to do so as well. The only concerns is that it has borrowed quite heavily recently due to low interest rates (I think). But with the luxury of stable cash flow that is not a much of an issue to the financials for the company.

Competitors

Amazon.com, Inc., Microsoft Corporation (Microsoft), International Business Machines Corporation (IBM), Intel and SAP SE and as well as other companies like Hewlett-Packard Enterprise, salesforce.com, inc. and Workday, Inc

Acquisitions

November 7, 2016, we acquired NetSuite Inc. for $9.0 billion.

Performance

Consistent revenue growth of 3% and constant 34% operating margin. Even better is that operating margin has been further increasing recently. This is mainly because reduction in operating expenses in Hardware and services segment.

Annual Highlights

2021
$21 billion repurchased.
Issued $15.0 billion of senior notes.

2020
$19.2 billion in repurchase.
Issued $20.0 billion of senior notes.

2019
repurchased $36 billion stocks.

2018
repurchased $11.5 billion stocks.
Issued $10.0 billion of senior notes.

2017
total revenues increased in fiscal 2017 due to growth in our cloud and on-premise software revenues and services revenues, partially offset by a decrease in our hardware revenues.
Repurchased $3.6 billion stocks
Issued $14.0 billion of senior notes

Working Capital Position

	Value	Median	Industry Median	Notes
Current ratio	1.52	2.07	2.02	Current ratio for current year 2021 is low because a large payable has come due. Following years would be better and close to the median range.
Cash Ratio	1.12	1.38	1.07
Cash to Debt	0.30	1.54	3.80	Oracle has added a lot of debt in recent years. But reliable and steady cash flow does not make this a big issue.
Debt to Equity	16	0.34	0.20	Oracle is highly levered company
Interest Coverage	4.06	8.22	35.90	Interest coverage has been trending down in last 5 years. From 7 to range(5,6). This is mainly because interest expense has been increasing, from higher borrowing, faster than operating income.

Management

• Days sales outstanding – 41 days. This has been trending down since before pandemic. After pandemic this has been decreased further. This is good.
• Days payable – 38 days. This has been increasing steadily and gone up even faster in this year 2021.

Operating margin

2016	2017	2018	2019	2020	2021
34%	34%	34%	34%	36%	38%

Returns

	2017	2018	2019	2020	2021
RoE	18.69%	7.16%	32.52%	59.87%	158.80%
RoIC	14.68%	4.89%	15.75%	14.84%	18.51%
RoA	7.65%	2.63%	8.99%	9.04%	11.15%

Increase/high in RoE is due to high leverage. RoIC and RoA increase mean that leverage is increasing returns.

Income analysis

2017	2018	2019	2020	2021
1.49	4.29	1.31	1.29	1.15

Enterprise DCF valuation