Oracle (ORCL) is more lucrative than ever, but faces serious challenges to its core software business.
On the positive side, the old Oracle money machine is working on all eight cylinders. For instance, Oracle records a gross profit of $7.24 billion on revenues of $9.193 billion for 4th Quarter 2018.
Notably, Oracle (NYSE: ORCL) reports an operating income of $2.778 billion and a net income of $2.265 billion for 4th Quarter 2018. Furthermore, Oracle reports an operating cash flow of $6.772 billion, an investing cash flow of $3.532 billion, and a free cash flow $6.339 billion for 4th Quarter.
Oracle (ORCL) is Still a Cash-Rich Company
Hence, Oracle (ORCL) is still a cash-rich company. Impressively Oracle recorded $18.455 billion in cash and equivalents and $41.639 billion in short-term investments on 31 August 2018. Thus, Oracle had $60.94 billion in the bank on 31 August 2018.
I consider Oracle a value investment because of all that cash and a low stock price. For instance, Oracle shares were trading at $47.90 on 29 November 2018.
Additionally, Oracle’s revenues are growing sluggishly. For instance, Stockrow reports Oracle had a 0.98% revenue growth rate in 4th Quarter 2018.
Oracle (ORCL) is a Value Investment
Oracle (ORCL) is a rather boring moneymaker that generates a lot of cash. Therefore, Oracle is a value investment despite Mr. Market’s disdain for it.
However, Oracle faces serious challenges in its core businesses of cloud and financial software. Surprisingly, the greatest menace to Oracle (ORCL) is now Microsoft (NASDAQ: MSFT).
To clarify, Microsoft is a major player in financial software through Excel, and a major player in the Cloud through Azure. In addition, Microsoft became a big player in open-sourced software by acquiring GitHub for $7.5 billion.
How Microsoft and GitHub threaten Oracle (ORCL)
Notably, 1.8 million businesses worldwide and half the Fortune 50 use GitHub software, The Financial Times reports. To clarify, the Fortune 50 is the 50 most valuable publicly traded companies in America.
By purchasing GitHub, Microsoft could expand its developer “workforce” by 31 million. GitHub claims 31 million developers are posting software in its 96 million repositories.
Beyond that GitHub claims 2.1 million organizations are using its software. Additionally, those made 200 million pull requests for software.
Can Oracle (ORCL) Compete with GitHub and Microsoft?
Oracle cannot compete with all the developer power Microsoft can access through GitHub. For example, Microsoft can flood the market with thousands of applications.
Moreover, Microsoft can “advertise” that software on the one billion Windows-powered PCs around the world. In addition, Microsoft claims there are 400 million computers running Windows 10 globally, The Verge reports.
For instance, Microsoft can introduce GitHub to hundreds of millions of users by adding a GitHub app to future versions of Windows and Microsoft Office. To explain, the GitHub will let users buy GitHub software through Windows.
Furthermore, Microsoft can offer customers a build your own software with GitHub feature. To clarify, Microsoft business or cloud customers could order new apps or features on GitHub. Then GitHub developers will bid on the creation of a custom solution.
Is it Possible for Oracle (ORCL) to compete with GitHub on Microsoft?
Hence, an entrepreneur could order almost any application he or she needs from a GitHub developer in India. Thus, any executive could order low-cost alternatives to Oracle solutions from her desktop.
I do not know how Oracle (ORCL) can compete with that. However, it will take a while for businesspersons, executives, entrepreneurs, and administrators to realize such capabilities exist.
Consequently, Oracle will keep a lot of its government, institutional, and corporate customers for a long time. Such customers will stay with Oracle because they do not realize that better or lower cost alternatives exist. Additionally, institutional customers spending other people’s money will have little incentive to shop for cheaper or faster alternatives to Oracle products.
On the other hand, relying on the lazy, unimaginative, or stupid customers is not a sustainable business strategy. In particular, such customers are probably incapable of growth. Thus, Oracle could find itself with a shrinking market.
Oracle (ORCL) is still a Superb Value Investment
Oracle Corp (NYSE: ORCL) is a superb value investment despite the GitHub/Microsoft menace.
In particular, Oracle is a great dividend stock. To clarify, Dividend.com reports Oracle offered a dividend yield of 1.61%, an annualized payout of 76¢, and a payout ratio of six years on 27 November 2018.
Oracle investors enjoyed a cash dividend of 19¢ on 30 October 2018. Moreover, that dividend increased by 4¢ in 2017. Oracle offered a 15¢ dividend in January 2017, and 19¢ in April 2017. To add icing to the cake, Oracle is completing six years of dividend growth.
Therefore, if you are seeking a low-cost dividend stock, Oracle (ORC) is a good choice. I think Oracle has years of dividends ahead of it despite the threat from Microsoft and GitHub.