Foolish Forecast: Oracle's Feeding Frenzy

Wednesday night is Oracle (Nasdaq: ORCL) night. That's when the world's largest database designer tells us how the quest for enterprise-software supremacy is shaping up. Go back and check out the numbers from Oracle's last quarter, and put some more meat on those numerical bones. Then come back here and see what's in store for the second quarter of fiscal 2008.

What Fools say:
Here's how Oracle's CAPS scoring rates against some of its peers and competitors:

	Market Cap (Millions)	Trailing P/E Ratio	CAPS Rating
Microsoft (Nasdaq: MSFT)	$323,140	22.7	***
IBM (NYSE: IBM)	$145,057	15.6	***
Oracle	$107,550	24.8	****
SAP (NYSE: SAP)	$61,810	22.0	***
BEA Systems (Nasdaq: BEAS)	$6,130	194.8	***

Data taken from Motley Fool CAPS on 12/18/07.

Out of all the big-time enterprise-software companies, Oracle gets the most love from our CAPS players -- but also the richest valuation out of the "really huge" foursome.

CEO Larry Ellison's acquisitive streak is both a blessing and a curse, if you read through the recent CAPS player comments. Acquisition is the company's main growth avenue, but integrating all of the companies Ellison buys presents perhaps the biggest challenge today. Otherwise, Oracle is simply an excellent operator in a temporarily downtrodden sector.

What management says:
Oracle recently launched an all-cash bid for BEA, but activist investor Carl Icahn and the BEA board ultimately snubbed the company. Rather than increasing the bid, Oracle then threw up its hands and said, "Your loss, guys!" And I tend to agree. More on that below.

What management does:
There's nothing wrong with growth by acquisition, as long as you can do it without destroying your margins. Oracle serves as a great model for how it's done right.

Margins	5/06	8/06	11/06	2/07	5/07	8/07
Gross	77.5%	77.0%	76.6%	76.5%	76.7%	76.9%
Operating	34.5%	34.1%	33.7%	33.5%	34.1%	33.8%
Net	23.5%	23.2%	23.0%	23.3%	23.7%	23.5%
FCF/Revenue	29.9%	29.4%	27.3%	27.8%	28.9%	33.0%

Y-O-Y Growth	5/06	8/06	11/06	2/07	5/07	8/07
Revenue	21.9%	23.1%	24.7%	26.9%	25.1%	24.5%
Earnings	17.2%	22.0%	28.6%	27.9%	26.4%	25.8%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
So why shouldn't Oracle bid up BEA to the skies above? For one thing, nobody else -- not IBM, nor SAP, nor Microsoft -- so much as glanced coyly in BEA's general direction. No bidding war, no opportunity lost. Ellison could simply come back later with a competitive but not excessive bid and see whether BEA has come to its senses.

For another, the database giant could spend a fraction of the $6.7 billion BEA bid on an up-and-comer like Tibco Software (Nasdaq: TIBX) or Blue Coat Systems (Nasdaq: BCSI). Growth potential doesn't have to be expensive, and both of the award-winning competitors I just mentioned have market caps below $1.5 billion and virtually no debt.

The acquisitions will continue, of course. This shark has swallowed three tiny minnows since the last earnings release, though the deals were all small enough to keep the details under wraps, and none of the targets was publicly traded. It's anyone's guess exactly which way Oracle will jump next, but the company remains hungry.

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