Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Long Ideas

Is it a Big Oracle Turnaround?

My favorite value technology stock; Oracle (NYSE: ORCL), seems to be undergoing something of a turnaround. The financial software provider’s revenues have started to grow again.

Oracle experienced a pretty big revenue drop between February 2015 and February 2016. It reported revenues of $38.84 billion in February 2015; and $37.16 billion in February 2016, a decrease of $1.68 billion. The revenues rebounded to $37.43 on February 28, 2017, not a big turnaround but pretty nice.

It looks as if Oracle is still capable of growth which is really good because this is one cash rich company. Oracle is a value investment because of all the cash it has.

Oracle still has a Lot of Cash

The financial report shows that Larry Ellison’s money machine is still humming away and generating a lot of float. Here are the juicy cash figures reported on February 28, 2017:

  • A net income of $8.917 billion.

  • A free cash flow of $2.259 billion.


  • $59.35 billion in cash and short-investments.


  • $125.38 billion in assets.


  • $7.693 billion in cash from financing.

  • $13.33 billion in cash from operations.


What’s more interesting is that the amount of cash that Oracle has in the bank has grown substantially since last year. In February 2016, Oracle reported $50.77 billion in cash and short-term investments. That means the company’s float increased by $8.58 billion over the past year.

Even more amazing is the fact that it has been much higher at times $68.4 billion in August of 2016. This is pretty impressive because Oracle’s cash from operations actually fell over the past year. Oracle reported making $14.18 billion in cash from its operations in February 2016, and $13.33 billion a year later.

The cash and short term investments figure alone proves that Oracle’s profit margin of 24.32% is for real. I’m pretty skeptical of profit margins as a measure of value because I can think of a few companies with high profit margins and no money. It’s a common ailment in the world of retail.

So Where is Oracle’s Money Coming From?

Oracle’s money comes from two places: software licensing and financing. Both of these revenue streams generate a lot of float because they are continuous.

If a customer wants to use Oracle’s software it has to pay the license fee. Since Oracle is pretty much the standard in accounting and finance software, a lot of companies are stuck with it. It is not Warren Buffett’s toll booth, but it is pretty close.

Oracle is a Classic Value Investment

This makes Oracle a classic value investment, similar to one of Uncle Warren’s favorite segments: insurance. Like an insurance company, Oracle generates and carries a lot of float.

The term float is how Buffett likes to describe insurance premiums which customers have to pay each month for coverage. That generates a pool of cash the company can tap for expansion, acquisition or to cover operational costs.

Beyond all the float, Oracle has some other value attributes. There’s the low stock price, $44.44 a share on April 4, 2017, and a high return on equity: 18.6% on February 28, 2017. Another benefit is the 19¢ dividend scheduled for April 10, 2017. That is four cents higher than the 15¢ paid on January 3, 2017.

Beyond all that Oracle is not a sexy company, it provides basic infrastructure in a business niche most people don’t see. That makes it a little obscure and keeps the share price low, unlike hot tech companies such as Alphabet and Amazon.

One reason why those superstars have such high share prices is that everybody knows all about them. Most people don’t know what Oracle does, so they don’t realize how much money it makes. Those of who have worked in finance understand what Oracle is because we’ve all used its products.

If you’re looking for a value investment in tech; or a widows and orphans stock from Silicon Valley, Oracle is it. The company is not sexy but it sure makes a lot of money, it is safe, boring and reliable and it rewards investors. What else could you ask for in a value stock?