Oracle Corporation

Investment Thesis

We suggest adopting a long position on this stock, positioning it as an appealing option for purchase due to its consistent and expanding dividend, steady growth in revenue, and the anticipated substantial growth in the cloud infrastructure sector. There are several positive aspects within the business and financial realms that we expect to yield favorable results, aspects that the investor community currently undervalues. Oracle's Cloud Infrastructure (OCI) is predicted to outperform its competitors due to its superior performance and more affordable pricing. The company is also actively reinvesting significant capital into its operations, as evidenced by its noteworthy capital expenditures and escalating research and development costs. This could effectively support its strategic acquisition approach and product range expansion. Our projected price target, based on the DCF model's base case, stands at $131.43. Furthermore, additional potential for growth is indicated by a comparable company analysis, which demonstrates that the company is currently underestimated by investors relative to its peers, particularly when considering EV/EBITDA and P/E ratios.

Business Analysis

Oracle provides products and services that address enterprise information technology (IT) environments. Oracle's operations are categorized into four distinct business segments: Cloud services and license assistance, Cloud License and on-premise license, Hardware, and Services.

Oracle's range of cloud services covers a diverse spectrum of offerings, encompassing Oracle Software-as-a-Service and Oracle Cloud Infrastructure, all delivered through a cloud-centric framework. Users can conveniently access these services via their preferred web browser. These Oracle cloud services have been strategically designed to expedite their implementation, leading to quicker innovation timelines. These services feature a user-friendly interface, catering to both novice and experienced users, and are engineered for simplified maintenance, reducing the effort needed for upgrades, integration, and testing. Furthermore, these services seamlessly integrate across different deployment models, enhancing flexibility among diverse IT environments. They ensure smooth compatibility, facilitating the transition of workloads between the Oracle Cloud and other IT configurations. In addition, these services are cost-efficient, requiring lower initial investments from customers. Primarily, they prioritize stringent security measures, adhere to established standards, and provide unwavering reliability.

Oracle Applications Technologies form an integral component of the cloud services and license support business division. This sector encompasses the company's Software-as-a-Service (SaaS) offerings, widely adopted by numerous global corporations, along with license support that is typically acquired by all Oracle customers. These support solutions offered by the company play a crucial role in safeguarding and augmenting the investments made by its clientele in Oracle applications. Among these provisions are proactive and personalized support services, notably Oracle Lifetime Support, in addition to unspecified license improvements and updates during the support duration. These services are meticulously crafted to ensure that customers receive all-encompassing aid and protection for their Oracle products, ultimately enhancing the value and lifespan of their investments. Over the years 2023, 2022, and 2021, revenues from Oracle Applications Technologies and license support contributed 47%, 42%, and 41%, respectively, to the overall cloud services and license support revenues.

Oracle provides its infrastructure technologies to clients through two main avenues: the cloud and license business segment, as well as the hardware business segment. Within the cloud and license business category, these infrastructure technologies encompass the renowned Oracle Database, acknowledged globally as the premier enterprise database solution. Furthermore, it encompasses Java, which holds the distinction of being the most widely utilized software development language in the computer industry. This portfolio also encompasses an array of middleware tools and development resources. These infrastructure technologies are accessible either through subscription to Oracle Cloud Infrastructure (OCI) offerings or via the acquisition of licenses, accompanied by associated license support. This affords customers the flexibility to deploy these technologies within the Oracle Cloud, integrate them into on-premise cloud services, or implement them within their own IT environments. Notably, the company's revenue from infrastructure cloud services and license support represented 53%, 58%, and 59% of total cloud services and license support earnings for the years 2023, 2022, and 2021 respectively.

The range of Oracle's infrastructure technologies also encompasses products available via the corporation's hardware business sections. This part of the business is divided into:

• Oracle servers (e.g. servers consisting of Oracle SPARC microprocessor or x86 microprocessor)
• Oracle storage
• Oracle industry-specific hardware offerings (products designed for particular industries such as food and beverage, hotel and retail)
• Oracle operating systems (e.g. Oracle Linux, Oracle Solaris)
• Oracle hardware support (provides support for oracle systems though software updates of the hardware products, repairs, and technical support)