Today we're going to talk about the second largest software company in the world--$Oracle (ORCL.US)$。

The focus of this article is as follows:

1. During the three economic downturns, the stock price outperformed the index.

2. Enrich the product line and tamp the basic plate

3. 23Q1's performance has grown steadily and its net profit has declined.

4. Value trap? High debts and fierce competition in the industry

In June 1977, Larry Ellison, Bob Miner and Ed Oates co-founded a computer company called Software Development Lab (SDL) in Silicon Valley (the predecessor of Oracle Corp). The Oracle database software they developed later dominated the database industry for decades.

Today, Oracle Corp is second only to$Microsoft (MSFT.US)$The second largest software company in the world. The main products are enterprise application software, servers and development tools, including Solaris, Java, MySQL, NetBeans and so on.

During the three economic downturns, stock prices outperformed the index.

In the past few economic recessions or market downturns, Oracle Corp's performance has far exceeded the index.

In 1990, during the Gulf War and the ensuing recession, Oracle Corp rose by more than 190 per cent, compared with 77 per cent for the Nasdaq and nearly 57 per cent for the S & P.

Between 1999 and the end of 2003, during the dotcom bubble recession, Oracle Corp rose 84 per cent, while the NASDAQ fell more than 8 per cent and the S & P 500 fell nearly 10 per cent.

In 2008, during the recession of the subprime crisis, Oracle Corp rebounded by nearly 83%, the NASDAQ rose nearly 10%, and the S & P 500 fell 11%.

Why Oracle Corp can be so stable, this is because its customers are mainly B-end enterprise users.Even during a recession, companies' use of software services will not stop. And Oracle Corp's products are highly sticky to users, and enterprises will not easily change their products once they are selected, so no matter what cycle the economy is in, Oracle Corp's products can always provide them with stable and predictable cash flow and give the company a guaranteed income.

Enrich the product line and consolidate the basic plate

In 2010, Oracle Corp announced a transition to cloud computing, launching a full range of IaaS, PaaS and SaaS products in 2015, and the second generation cloud product Oracle Corp Gen 2 Cloud in 2018. Oracle Corp focused on self-consistent database and established a cloud computing development route focusing on secure cloud platforms.

In order to consolidate the business chassis, Oracle Corp continues to acquire cloud software manufacturers, as of 2019 data, the company has acquired a total of 128 enterprises. By consolidating his own advantages and enriching his product line through acquisition, Oracle Corp gradually realized$SAP SE (SAP.US)$、$Salesforce (CRM.US)$、和$Microsoft (MSFT.US)$Waiting for competitors to catch up.

At present, Oracle Corp's business can be divided into three parts: cloud business and license, hardware system and service.

Cloud business and licenses are the company's main source of revenue, which accounts for about 81% of revenue, according to the latest financial data. This section can be divided into cloud infrastructure (IaaS+PaaS) and cloud applications (SaaS), including the well-known programming language Java.

23Q1 performance growth is steady, net profit is declining

Oracle Corp released its Q1 financial results for fiscal year 23 on September 13th. Overall revenue for the three months ended Aug. 31, 2022, was $11.445 billion, up 17.7% from a year earlier. Operating costs were 8.822 billion, up 40 per cent from a year earlier, of which R & D expenses rose 24.3 per cent, with net profit falling 40 per cent to $1.548 billion.

Excluding revenue from Cerner, one of the largest US healthcare IT companies acquired at the beginning of the year, total revenue rose 8 per cent at fixed exchange rates, driven by fast-growing applications and infrastructure cloud business.

The total revenue of cloud services and licensing support is US $8.4 billion, which is 20% higher than the same period last year despite the exchange rate impact. The main driving force is the integration of independent databases and second-generation Oracle Corp cloud infrastructure.

As the absolute leader of ERP products, strategic backend cloud applications have generated annual revenue of US $5.8 billion, rising 33% despite the exchange rate impact, of which NetSuite ERP is up 30% and Fusion HCM is up 26%.

Value trap? High debts and fierce competition in the industry

It is worth noting that Oracle Corp's debt level has risen year after year.

High debt ratio is not unacceptable in the software industry, because the industry's unique high profit margins, its cash flow can solve the debt burden, many companies will increase leverage in order to seize the market.

However, Oracle Corp carries a heavy burden on mergers and acquisitions and buybacks, and his debt ratio is significantly higher than that of his peers.In fiscal year 2018, the company's asset-liability ratio was 66.32%, which reached a staggering 105.28% in fiscal year 2022.而$Microsoft (MSFT.US)$、$Salesforce (CRM.US)$、$Adobe (ADBE.US)$、$Intuit (INTU.US)$、$SAP SE (SAP.US)$Debt ratios of well-known SaaS companies are allNo more than 60%Oracle Corp's high debt ratio brings certain risks to investors.

According to Statista citing Synergy Group data, the second quarter of 2022Oracle Corp has only 2 per cent of the cloud infrastructure services market.

One of the reasons it lags behind its competitors is its slow transition to cloud computing. A mature cloud infrastructure was launched in 2016, while competitors did it earlier.

The second reason is the quality, complexity and poor customer experience of its ecosystem. Gartner, a well-known consulting firm, only rated Oracle Corp infrastructure as a secondary cloud system. It also said the company threatened customers to increase the cost of database licenses if they chose other cloud providers.

This is the problem with Oracle Corp. Over the years, instead of developing high-quality products, we have spent a lot of money on mergers and acquisitions, buybacks and dividends, while increasing leverage to an unreasonable level.

Niu friends, do you think Oracle Corp is a safe haven or a value trap during the economic downturn?

More about Oracle Corp's business analysisClick here.Check out the encyclopedia of Fortune stocks.