“The market has responded to the Oracle announcement in a very positive way,” says Dan Morehead, CEO and co-founder of Pantera Capital. “It was clearly one of those seminal moments when people realized this technology is here.”
The “oracle news” is a recent article that has been published by the Oracle. It talks about how they are testing investors’ new found faith.
Oracle paid $28 billion for Cerner Corp, a business that specializes in electronic medical records.
Getty Images/Jonathan Sullivan
When Oracle Corp. ORCL -5.15 percent gets a line of credit, they don’t waste any time in utilizing it.
Investors provided the line of credit in this instance, driving the 44-year-old software company’s share price up roughly 16 percent after its fiscal second-quarter results release on Dec. 10. The stock now has a year-to-date return of more than 60%, outpacing several of the newer, much-faster-growing cloud businesses that are posing a rising threat to Oracle’s legendary enterprise software sector.
Oracle’s own cloud products have been gaining popularity and strengthening the business’s prospects; over the previous three quarters, the company has averaged about 6% revenue growth year over year, its greatest three-quarter run in nearly four years.
Cerner Corp. CERN 0.80 percent’s $28 billion purchase, announced Monday morning, looks to be putting investors’ confidence to the test. After The Wall Street Journal first revealed the proposed acquisition on Friday, Oracle’s stock plunged more than 3%, adding to a 6% slump. The acquisition is Oracle’s biggest ever, costing more than treble the $9.3 billion it paid for NetSuite in 2016. It also enhances the possibility that Oracle may resume its M&A spree. According to FactSet, Oracle’s purchase of PeopleSoft for $10.3 billion in 2005 launched off a decade-long frenzy that saw the company acquire 110 firms, three of which had transaction values exceeding $1 billion.
That concern might be exaggerated. Software has become a costly hunting field. The S&P 500 Software & Services Group trades at a 50 percent premium to the main S&P 500 index, at an average of 31 times projected earnings. This compared to a 10% premium five years ago, and it doesn’t take into account the fact that many of the hottest cloud brands are still losing money and selling at more than 30 times projected sales.
With prices like this, every buyer is forced to be picky. While Oracle produces roughly $12 billion in normalized free cash flow each year, its expanding net debt position—driven in part by a frenetic pace of stock buybacks—makes competing with other acquisitive software titans like Microsoft and Salesforce.com difficult.
Cerner, on the other hand, seems to be a strong discovery in that regard. Analysts predict that the business, which specializes in electronic medical records, will produce slightly more than $6 billion in sales next year. Oracle’s revenue would increase by around 14% as a result of this. Cerner’s stock, on the other hand, has been in a downturn, with a year-to-date gain of just 2% after news of Oracle’s interest. According to Brent Thill of Jefferies, the purchase values Cerner at roughly 5 times projected revenues, which “seems good in today’s valuation market.”
Oracle’s task will be to demonstrate that it does not need to depend on megadeals to maintain its current success. While Cerner hasn’t been subjected to the same level of scrutiny as its key cloud-computing competitors Amazon.com, Google, and Microsoft, Citi analyst Tyler Radke believes that authorities will keep a tight watch on the purchase, particularly given Cerner’s core business of sensitive medical data. Closing this business might be Oracle’s most difficult sales challenge ever.
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The print version of the December 21, 2021, was published.
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Oracle has announced that it will be testing investors’ newfound faith. The company is hoping to increase revenue by 2020. Reference: oracle revenue 2020.
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