Should You Invest in Oracle, New Island and All?

Oracle (Nasdaq: ORCL  ) CEO Larry Ellison's personal spending habits and sometimes off-the-wall behavior haven't concerned shareholders in the past, and why should they? The growth in the company's stock over the years has been impressive, regardless of Ellison's lifestyle, approaching an 11.8% average total return the past 15 years, and 13.5% the past 10 years. His recent spending spree -- an agreement to drop $500 million to $600 million to buy the Hawaiian island of Lanai -- is almost too much to comprehend, but thankfully it won't affect the opportunity Oracle presents investors one lick.

So Larry's being Larry (again). What about the stock?
It would be easy to envy the Life of Larry and to the point of losing sight of the opportunity his company offers investors. The recent fiscal Q4 earnings results were impressive in a number of ways and warrant a quick review. Though revenues were up a mere 1%, hurt primarily by the 16% drop in hardware systems sales, other areas of the company performed admirably.

License revenues, and the support services that go along with these, were up 7% and 5%, respectively. With solid GAAP operating margins of 42%, it's not surprising Oracle was able to jack up operating income to $4.6 billion, and net income followed right along with it, jumping 8% year over year.

As for the hardware side of the business, it should come as no surprise Oracle is feeling pressure as the shift to software as a service (SaaS) and cloud technologies continues. Let's face it -- for a lot of businesses it's cheaper and easier to let someone else host, maintain, and upgrade systems and software than to do it internally. And that's why cloud computing, and Oracle's decision to finally dive into it big time, is a great move for the mid- to long-term investor.

Longtime Oracle pundits will recall Ellison's allusion to the cloud several years ago as nothing more than a fad when he said that "the computer industry is the only industry that is more fashion-driven than women's fashion." But to his credit, and the benefit of existing shareholders and potential investors, the company's new Oracle Cloud and associated business lines have made it clear they've seen the light. Impressively, cloud lines of revenue are already on pace to generate nearly $1 billion in revenue annually. And with the recent unveiling of what Oracle describes as a cloud solution that offers "a broad portfolio of software as a service applications, platform as a service, and social capabilities, all on a subscription basis," Oracle took a big step in what most agree is the right direction -- an emphasis on cloud computing.

Of course, Oracle is hardly alone in embracing cloud technologies as a key revenue driver. One of the first out of the gate, and still a significant cloud competitor, is salesforce.com (NYSE: CRM  ) . Another early entrant was Amazon.com's (Nasdaq: AMZN  ) AWS Cloud offerings. However, neither Salesforce nor Amazon falls into the same investment opportunity as the financially stable and reasonably valued Oracle. With more than $30 billion in reserve and growing operating cash flows, Oracle is an industry stalwart. Both Salesforce and Amazon trade more like new, Internet growth stocks with valuations through the roof and, in the case of salesforce.com, exploding selling and admin expenses on top of several successive quarters of negative earnings.

Google (Nasdaq: GOOG  ) or Microsoft (Nasdaq: MSFT  ) certainly shouldn't be ignored, either. Google's Docs was one of the first cloud technologies average lay people used -- many without even realizing they had become cutting-edge technophytes! And not surprisingly, Microsoft declares that it has "the most comprehensive cloud offerings of any vendor," and it's certainly no slouch when it comes to competing. But with a cloud market that could grow to $241 billion annually by 2020, according to Forrester Research, there's enough room for everyone, and Oracle's existing business clientele will also help it continue its rapid rise.

As usual, what Ellison decides to do with his own money, including buying a Hawaiian island, won't affect shareholders or investors in search of growth over the coming year. And at a mere 9.5 times future earnings, Oracle offers investors some serious upside and one of the best opportunities of the technology industry bunch.

Betting on the future of the cloud and other cutting-edge technologies requires some chutzpah, no doubt. But the upside, as investors will see with Oracle, can be huge. It can be difficult to stay on top of new and improved high-tech investment options; for one of the best, check out the special free report "The Only Stock You Need to Profit From the NEW Technology Revolution."

Fool contributor Tim Brugger currently holds no securities positions, including any mentioned in this article. The Motley Fool owns shares of salesforce.com, Microsoft, Amazon.com, Google, and Oracle. Motley Fool newsletter services have recommended buying shares of Amazon.com, Microsoft, Google, and salesforce.com, creating a bull call spread position in Microsoft, and creating a bear put spread position in salesforce.com. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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  • Report this Comment On June 26, 2012, at 12:35 AM, SuntanIronMan wrote:

    Considering the cost of Hawaiian real estate, nearly 90,000 contiguous acres of land for half-a-billion seems like a good deal. Lot of potential to turn this land into productive land. I doubt Mr. Ellison has any intentions of becoming a farmer himself, but the island was developed at one point in time as a huge pineapple plantation (by one of the previous owners, nearly a century ago). Lots of potential there. If I'd had the money, I'd invest in a ton of farmland right now.

    But if he bought it just to buy it, that's still pretty cool. Who else can say they own an entire (98%) Hawaiian island? Nobody, that's who. Lol.

  • Report this Comment On June 26, 2012, at 12:43 AM, SuntanIronMan wrote:

    Well, except for the Sinclair/Robinson family. Forgot about the Sinclairs and Niʻihau.

    (Recalling that from my Hawaiian history classes.)

  • Report this Comment On June 26, 2012, at 4:16 PM, timbrugger wrote:

    WhichStocksWork,

    "Because I can" IS pretty cool, and reason enough.

    Thanks for the post, Tim.

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