Will Oracle (ORCL) make money with TikTok Global?

Larry Ellison and company think Oracle (NYSE: ORCL) can make money with TikTok Global.

To elaborate, Oracle (ORCL) will own 12.5% of a new company they will call TikTok Global, ZDNET claims. Walmart (NYSE: WMT) will own 7.5% of TikTok Global, which could hold an initial public offering (IPO) within a year.

In exchange for the 12.5% TikTok Global stake, Oracle will become TikTok’s cloud provider, ZDNET claims. Walmart (WMT) will use TikTok for ecommerce.

The deal averts President Donald J. Trump’s (R-Florida) threat to shut TikTok down in the United States. The President approved the TikTok Global deal on 19 September 2020, Bloomberg reports.

In addition, TikTok Global will funnel $5 billion to a new education fund in the US, Trump claims. However, China’s ByteDance Ltd could own 80% of TikTok Global. TikTok Global could be an American company based in Texas, Bloomberg claims.

TikTok is considering Instagram cofounder Kevin Systrom for the Chief Executive Officer’s (CEO) job at TikTok Global, Deadline claims. ByteDance Ltd values TikTok Global at $60 billion, Bloomberg claims.

TikTok joins the Oracle Cloud

“Oracle will quickly deploy, rapidly scale, and operate TikTok systems in the Oracle Cloud,” said Oracle CEO Safra Catz in a press release. “We are a 100% confident in our ability to deliver a highly secure environment to TikTok and ensure data privacy to TikTok’s American users.”

Oracle will get full access to TikTok’s source code and updates, Bloomberg claims. That access could prevent ByteDance and others from using TikTok to gather intelligence about its US customers, Bloomberg claims. Note I think this claim is impossible, but Bloomberg’s journalists believe it.

Oracle, General, Atlantic, Sequoia, Walmart, and Coatue will use TikTok Global to build an online video curriculum driven by artificial intelligence (AI), a press release claims. Details of the initiative are unknown, but I think the curriculum could be a big moneymaker.

Can Oracle and TikTok Global make money from Online Education?

In particular, TikTok Global could sell courses and other educational materials to public school systems. That market could be enormous because the National League of Cities (NLC) estimates there are 13,726 school districts and 1,452 city or county school systems in the United States.

I think a video curriculum could be a good way for Oracle Corp (NYSE: ORCL) to get school systems to use the Oracle Cloud. One obvious use of TikTok Global’s video courses will be for home schooling.

Another use of TikTok Global’s video curriculum could be to offer college courses and lectures at public school buildings. The Oracle Cloud Infrastructure (OCI) IaaS could support the TikTok Global video curriculum. IaaS stands for infrastructure as a service (IaaS).

Oracle has experience delivering video content because Zoom (NASDAQ: ZM) bases its core content in the Oracle Cloud. I have to wonder if Zoom, Oracle, TikTok Global, and Walmart plan to enter the EaaS market. EaaS stands for Education as a Service.

Zoom (ZM) claims over 300 million people participated in its video meetings each day on 22 April 2020. However, The Verge alleges Zoom changed that claim from “more than 300 million daily users” to over 300 million meeting participants.

An obvious revenue source for Oracle is combining TikTok Global and Zoom’s video capacities with the Oracle Cloud. An organization could create encrypted and dedicated Zoom or TikTok channels for its employees, clients, or customers.

Is Oracle Making Money?

I think Oracle (ORCL) could profit from TikTok Global because it makes enormous amounts of money from its existing business.

For instance, Oracle reported a quarterly operating income of $3.211 billion and a quarterly gross profit of $7.487 billion on 31 August 2020. Additionally, Oracle’s reported quarterly revenues of $9.367 billion on 31 August 2020.

However, Oracle’s quarterly revenues fell from $10.44 billion on 31 May 2020. In addition, Oracle’s quarterly gross profit dropped from $8.471 billion and Oracle’s quarterly operating income fell from $3.116 billion in May 2020.

Plus, Oracle reported a quarterly common net income of $2.251 billion on 31 August 2020. That number fell from $3.116 billion three months earlier.

Oracle Generates Enormous Amounts of Cash

The Oracle money machine still generates enormous amounts of cash. For example, Oracle reported a quarterly operating cash flow of $5.953 billion on 31 August 2020. Oracle’s quarterly operating cash flow grew from $3.614 billion on 31 May 2020.

Dramatically, Oracle reported a quarterly ending cash flow of $27.276 billion on 31 August. Oracle’s quarterly ending cash flow grew from $13.410 billion on 31 May 2020.

Finally, Oracle had $42.279 billion in cash and short-term investments on 31 August 2020. Oracle’s cash and short-term investments fell from $4.3.057 billion on 31 May 2020 but grew from $25.858 billion on 29 February 2020.

Oracle is a value investment

I think Oracle (NYSE: ORCL) is a good value investment with enormous growth potential because of its 12.5% TikTok Global stake.

I believe Mr. Market undervalued Oracle at $60.82 a share on 21 September 2020. In 2020, Oracle has experienced moderate share growth, Oracle began 2020 at $53.95 on 2 January 2020.

I think Mr. Market undervalues Oracle because it reported total assets of $113.546 billion on 31 August 2020. Oracle’s asset value grew from $96.704 billion on 29 February 2020 but fell from $115.438 billion on 31 May 2020.

I consider Oracle a good dividend stock because it will pay a 24₵ quarterly dividend on 22 October 2020. Overall, Dividend.com estimates Oracle paid a 96₵ annualized dividend and a 1.60% dividend yield on 18 September 2020.

Why Oracle Wants TikTok Global

It is easy to see why Oracle Corporation (NYSE: ORCL) wants TikTok Global. Oracle’s revenues are stagnant.

Stockrow estimates Oracle’s revenue grew by 1.62% in the quarter ending on 31 August 2020. However, Oracle’s revenue growth fell by 6.26% in the quarter ending on 31 May 2020. Hence, coronavirus ate into Oracle’s revenue growth.

I think Oracle will need to deliver far stronger revenue growth to thrive in today’s markets. However, Oracle’s management is taking steps to get that revenue growth. The TikTok Global deal and the growing alliances with Zoom (ZM) and Walmart (WMT) could deliver that revenue growth.

I think Oracle is a value investment with or without TikTok Global. However, I think Oracle could become a growth investment with TikTok Global.