I think software is a value investment because Oracle makes lots of money. Specifically, Oracle recorded a gross profit of $7.638 billion on revenues of $9.614 for billion on 28 February 2019.
Moreover, Oracle (NYSE: ORCL) reported a gross margin of 79.45% for a quarter in which its revenue growth rate fell by -0.64%. To elaborate, Stockrow gives Oracle a gross margin of 79.45% and a revenue growth rate of -0.64% for 28 February 2019.
Hence, I estimate Oracle spent 20.45₵ to make 79.45₵ in the quarter ending in February 2019. Tellingly, Stockrow estimates Oracle’s Cost of Revenue for the last quarter at $1.975 billion.
Finally, Oracle recorded an operating income of $3.399 billion and a net income of $2.745 billion for the quarter ending in February 2019. Oracle is making a lot of money despite falling revenue growth.
How Much Money is Oracle Making?
I consider Oracle Corporation (NYSE: ORCL) a value investment because it generates lots of cash.
For instance, Oracle recorded an investing cash flow of $13.199 billion; an operating cash flow of $2.861 billion, and a free cash flow of $2.418 billion on February 28, 2019. Those cash flows enabled Oracle to accumulate $14.72 billion in cash and equivalents and $25.310 billion in short-term investments on the same day.
Consequently, Oracle had access to $40.03 billion in liquid assets at the end of February. Therefore, Oracle’s cash proves software is a value investment because software suppliers can generate high cash flows and accumulate bank accounts. If you like cash you should love Oracle.
Oracle is a Cheap Value Investment
Best of all, Oracle is very cheap right now. In fact, Oracle shares were trading at $51.62 on 29 May 2019 despite the cash.
In my opinion, the low price makes Oracle a classic value investment because it proves Mr. Market does not appreciate the company. My guess is that investors do not understand Oracle’s product, financial software; even though they or their employers probably use and pay for it.
Plus, Oracle is not a sexy company, because it makes software for banks not killer apps, social media applications, virtual reality, or video games. Hence, there is little glamour and no gee-whiz factor at Oracle. Software for people who were suits and work in offices is lucrative, but it is not lucrative.
On the other hand, many investors will appreciate the lack of drama at Oracle. The most controversial thing at Oracle is the length of CEO Larry Ellison’s yacht. Obviously, there are far worse problems a company could have.
Oracle has a lot of Value
Additionally, Oracle owns and operates a massive ecosystem that most people never see. The gigantic ecosystem gives Oracle vast amounts of value, Mr. Market cannot see.
Notably, Oracle claimed to have 430,000 customers and 25,000 partners in 175 countries in 2018. Interestingly, Oracle estimates its products support over 6.3 million students in 128 countries.
Furthermore, Oracle claims to own over 18,000 patents worldwide. More importantly, Oracle estimates it had over one million members in 484 independent development communities in 92 countries. To that you can add the five million estimated members in the Oracle Development Community.
Beyond that, 137,000 employees and 25,000 partnerships worldwide support Oracle‘s network. In detail, those employees include; 38,000 developers and engineers. Source: Oracle Fact Sheet.
How Oracle Makes Money
An autonomous database, for instance, theoretically manages itself without human supervision. You could store records from a government program or a bank’s lending programs without a large clerical staff by using the Autonomous Database.
Such a database generates income for Oracle, because customers pay an annual or monthly fee to use it. Hence, many of Oracle’s solutions generate what Warren Buffett likes to call float.
How Oracle Generates Float
Float is a stream of constant income that a company can tap with no strings attached. Buffett’s favorite example of float is insurance premiums, for example.
Software can generate float because; like insurance, it is a product customers constantly need. Users, moreover, need to pay a regular license fee; or subscription, to use the software legally.
Suppliers of software, like Microsoft (NASDAQ: MSFT), Oracle, and Salesforce (NYSE: CRM) make money by selling apps and other solutions organizations and individuals. Ideally, software suppliers will charge a monthly subscription or premium for those apps which leads to float.
App investors should look for must-use applications; that charge a monthly or annual subscription. Strategically, Oracle’s platform offers access to many potential must-use solutions for business.
Oracle is a Good Dividend Stock
A good dividend is the last of Oracle’s many benefits. ORCL paid a 24₵ dividend on 25 April 2019. Attractively, that dividend grew by 5₵ in 2019, rising from the 19₵ paid on 30 January 2019.
On 29 May 2019, Oracle shareholders were receiving a dividend yield of 1.86%, an annualized payout of 96₵, and a payout ratio of 31.3%. I think such numbers make Oracle a reliable income stock.
Those looking for a safe tech stock that is a reliable moneymaker need to investigate Oracle. Financial software and database management are not sexy, but Oracle proves such applications can be very lucrative.