Does Oracle know what it wants to say?
With Oracle having just closed its November 2Q, investors are busily attempting to handicap the performance. As we stated in our first post to this blog, we are going to refrain from opining on very short term performance.
As a long time observer and fan of Oracle, we have been frustrated by the inability of the company to garner significant investor support as reflected by its comparatively modest valuation.
Certainly there are lots of issues that concern investors.
One is the maturity of the relational DBMS market. Another is represented by the competitive challenges of traditional players such as Microsoft and IBM, but also emerging open source alternatives such as MySQL, Ingres and many others.
Apart from questions regarding the growth prospects for Oracle’s core business, there are plenty of concerns revolving around the company’s acquisition strategy, breadth and depth of the management team.
Obviously we are not in a position to answer all of these questions, nevertheless our research suggests that Oracle is generally doing better than most investors appreciate and that there message is resonating better in the customer market than within the investment community.
Oracle has been undergoing some dramatic changes. While there may be a clear sense within the company of where it is going longer term, management is certainly guilty of conveying mixed signals to investors regarding the near-term. We believe the primary reason behind the poor communication with investors is due to management trying to get their arms around short term execution in the midst of so many moving parts -- and this is certainly a factor undermining the stock's valuation.
The question of short term performance is particularly acute in the applications business, where Oracle has claimed that its market share is growing. Clearly it is, if one looks at total revenues (licenses and support) on a year over year basis. However, if one attempts to look at Oracle’s performance on an “apples to apples” basis (adjusting for acquisitions), and uses licenses revenues as the primary barometer of health, then clearly market share has shrunk. Longtime industry observers will appreciate that there are a lots of extenuating factors to consider in the analysis. A couple of examples would be to what degree PeopleSoft drained its pipeline as it tried to ward off Oracle, or to what extent Oracle in its bid to challenge SAP engages in much more aggressive discounting on license fees so as to capture more customers and more support revenues.
Oracle’s communications with investors has been muddled. Our suggestions for improvements are as follows:
1) Define a consistent message regarding Oracle’s strategy and positioning. Too often we get what seem to be contradictory statements regarding Oracle’s intentions. Whether this is part of a Machiavellian strategy to keep competitors off balance, or a reflection of CEO Larry Ellison’s unique personality is hard to tell. Regardless, mixed signals while perhaps a valid competitive tactic, create issues for customers, prospects and investors. In our opinion a more consistent message would be a significant positive.
2) Go the next step. In presentations to investors, Oracle makes a good argument regarding looking beyond license revenue performance in determining market share success. However, apart from making the assertion, including a detailed illustration that supports the analysis would be useful. (You cannot “spoon feed” too much!)
3) Loose the attitude. Oracle is an incredible success story, everyone knows it. Likewise, it is also a truism that management views its shares as undervalued and sees this as evidence that investors don’t get it. While this may be a way to rationalize why the stock price has been stuck in the mud, despite improving financial performance, it is not a productive way to solve the problem. If the street doesn’t get it, then it is Oracle’s responsibility on behalf of its shareholders to present its view in a constructive manner so as to sell Wall Street on the validity of its argument. The only reason Oracle shouldn’t accept this responsibility is if in doing so it adversely impacts its ability to execute its strategy in that competitors are made that much more knowledgeable as a result. If this is the reason, then at the very least Oracle should not alienate the street with a critical, arrogant and often negative tone.
4) No more major acquisitions until it is well established that Oracle has fulfilled its objectives with the current deals. To know for sure whether Oracle is ultimate successful will take several years at least to better detail product strategy and to deliver in a timely fashion on that vision.
Put succinctly Oracle’s modest valuation is more a reflection of lost credibility with investors as a result of poor positioning and communication than its absolute performance as one of the leading software vendors.
Legal Disclaimer
Nothing herein constitutes an offer or solicitation to buy any security. Readers are advised to review their own financial situation, risk tolerance, and investment objectives as to any investment. Information provided here is based, in part, from sources believed to be accurate and reliable, although no representations or guarantees can be provided as to its accuracy or completeness.
As a long time observer and fan of Oracle, we have been frustrated by the inability of the company to garner significant investor support as reflected by its comparatively modest valuation.
Certainly there are lots of issues that concern investors.
One is the maturity of the relational DBMS market. Another is represented by the competitive challenges of traditional players such as Microsoft and IBM, but also emerging open source alternatives such as MySQL, Ingres and many others.
Apart from questions regarding the growth prospects for Oracle’s core business, there are plenty of concerns revolving around the company’s acquisition strategy, breadth and depth of the management team.
Obviously we are not in a position to answer all of these questions, nevertheless our research suggests that Oracle is generally doing better than most investors appreciate and that there message is resonating better in the customer market than within the investment community.
Oracle has been undergoing some dramatic changes. While there may be a clear sense within the company of where it is going longer term, management is certainly guilty of conveying mixed signals to investors regarding the near-term. We believe the primary reason behind the poor communication with investors is due to management trying to get their arms around short term execution in the midst of so many moving parts -- and this is certainly a factor undermining the stock's valuation.
The question of short term performance is particularly acute in the applications business, where Oracle has claimed that its market share is growing. Clearly it is, if one looks at total revenues (licenses and support) on a year over year basis. However, if one attempts to look at Oracle’s performance on an “apples to apples” basis (adjusting for acquisitions), and uses licenses revenues as the primary barometer of health, then clearly market share has shrunk. Longtime industry observers will appreciate that there are a lots of extenuating factors to consider in the analysis. A couple of examples would be to what degree PeopleSoft drained its pipeline as it tried to ward off Oracle, or to what extent Oracle in its bid to challenge SAP engages in much more aggressive discounting on license fees so as to capture more customers and more support revenues.
Oracle’s communications with investors has been muddled. Our suggestions for improvements are as follows:
1) Define a consistent message regarding Oracle’s strategy and positioning. Too often we get what seem to be contradictory statements regarding Oracle’s intentions. Whether this is part of a Machiavellian strategy to keep competitors off balance, or a reflection of CEO Larry Ellison’s unique personality is hard to tell. Regardless, mixed signals while perhaps a valid competitive tactic, create issues for customers, prospects and investors. In our opinion a more consistent message would be a significant positive.
2) Go the next step. In presentations to investors, Oracle makes a good argument regarding looking beyond license revenue performance in determining market share success. However, apart from making the assertion, including a detailed illustration that supports the analysis would be useful. (You cannot “spoon feed” too much!)
3) Loose the attitude. Oracle is an incredible success story, everyone knows it. Likewise, it is also a truism that management views its shares as undervalued and sees this as evidence that investors don’t get it. While this may be a way to rationalize why the stock price has been stuck in the mud, despite improving financial performance, it is not a productive way to solve the problem. If the street doesn’t get it, then it is Oracle’s responsibility on behalf of its shareholders to present its view in a constructive manner so as to sell Wall Street on the validity of its argument. The only reason Oracle shouldn’t accept this responsibility is if in doing so it adversely impacts its ability to execute its strategy in that competitors are made that much more knowledgeable as a result. If this is the reason, then at the very least Oracle should not alienate the street with a critical, arrogant and often negative tone.
4) No more major acquisitions until it is well established that Oracle has fulfilled its objectives with the current deals. To know for sure whether Oracle is ultimate successful will take several years at least to better detail product strategy and to deliver in a timely fashion on that vision.
Put succinctly Oracle’s modest valuation is more a reflection of lost credibility with investors as a result of poor positioning and communication than its absolute performance as one of the leading software vendors.
Legal Disclaimer
Nothing herein constitutes an offer or solicitation to buy any security. Readers are advised to review their own financial situation, risk tolerance, and investment objectives as to any investment. Information provided here is based, in part, from sources believed to be accurate and reliable, although no representations or guarantees can be provided as to its accuracy or completeness.
posted by jcm at 3:37 PM
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