Boring Portfolio Boring Buys ORCL
November 21, 1996

Trade: Buying 100 shares Oracle Corp (Nasdaq: ORCL)

Closing Price, November 20, 1996: $47 7/8

You may be ready to strangle the next person who starts blathering about the dawning of the Information Age and how it's the most significant human advance since the steam engine, or the printing press, or fire, or whatever. Please resist the temptation -- at least for now. I'm not proposing to sell you a bridge to the 21st Century; I just want to make a pitch for a stock.

If you believe that the storage, retrieval, manipulation, and communication of information will be of increasing importance to business, education, government and just plain people in the future -- and I do -- then it makes good sense to invest in companies that help folks manage information. An investor willing and able to tolerate a lot of risk for potentially big rewards might amass a portfolio of small-cap start-ups that might (or might not) someday become the leader in that hotly-contested field. More Boring types would simply buy the leader.

Ergo, Oracle.


Oracle Corp. is the world's leading supplier of software for information management. In 1979, the company introduced the first commercially available relational database management system (DBMS), and highly evolved versions of that first DBMS continue to constitute Oracle's core product. Oracle7 relational DBMS is a multimedia DBMS that runs on many kinds of computers, from supercomputers to laptops, and on over 85 different operating systems. Oracle 7.3 handles a wide range of information, including video, audio, text, messaging, spatial and other types of data. Oracle 8 is currently in beta, with release expected in 1997.

Complementing Oracle's core product are two rapidly growing business segments: application development and business intelligence tools (includes application design and development and data access tools) and client-server business applications (software application modules for finance and administration, manufacturing, human resources, etc.).

The company also offers extensive consulting, education, support, and systems integration services.

With these existing products and services -- and new ones on the way (such as the controversial Network Computer) -- Oracle's intention is to do nothing less than to define the future of computing and information management (read: wrest at least some control from Bill, Andy, and the Windows/Intel hegemony). Oracle is targeting corporate intranets as a major growth engine, developing server software, development tools, and applications for the enterprise-wide networks.

Although a great deal of attention has been heaped on the alleged $500 "Internet appliance," Oracle's future depends less on that, or any other, piece of hardware than it does on the trajectory of business and individual needs to access and manipulate information stored in many different forms, on many different platforms, in many different places. That trajectory is up, fast, and accelerating.

In the relational DBMS business, Oracle's principal competitors include Informix and Sybase. The former continues to try to break Oracle's grip on large contracts and in international markets, while the latter tends to work the low end, competing on price.

In the applications area, German-based SAP is the big competitor. According to Oracle, SAP suffers from a reputation of being expensive, hard to implement, and inflexible. PeopleSoft is a smart and rapidly-growing competitor, but Oracle expects them to run into some problems because of the lack of scalability in the product -- or at least Oracle thinks their product lacks scalability.

Microsoft NT is the latest all-around entry, and it remains to be seen how it will impact Oracle.


In 1976, IBM published the specifications for a command language called SQL (pronounced "sequel"), which allowed for users to access and use data stored in a relational DBMS. Oracle was formed the following year to develop a relational DBMS using SQL. In June 1979, the company introduced the first commercially available relational DBMS.

Larry Ellison, about whom an entire book could be -- and has been -- written without capturing his complexity entirely, joined with Robert Miner and Edward Oates to found Oracle in 1977. The company went public in 1986 and grew rapidly based largely on its sales to government. Within two years, Oracle had a 36% share of the government PC database market.

That growth was not without costs. Management was sloppy, and the firm developed a reputation as a leader in "vaporware." In the push to be first to market, software was sometimes released prematurely and filled with "it's not a bug, it's a feature" surprises. On the financial side, Oracle's books weren't always entirely bug-free, either. The company recorded a loss for fiscal 1991, restated earnings downwardly for several past years, and laid off hundreds of employees. Not surprisingly, the stock nose-dived.

Recognizing (with "help" from the board) that the company had passed the entrepreneurial stage, Ellison put Oracle on solid ground by granting Nippon Steel an option to buy 25% of its Japanese operations. He also brought in a team of financial managers whose talents equaled those on the technology side of the business.

In 1992, Oracle launched Oracle7, and it was off to the races. Sales crossed the $2 billion line in fiscal 1994, securing Oracle's position as the #1 maker and distributor of DBMS software.

In 1994, the company introduced Oracle Mobile Agents, which permits users to communicate with application servers via digital radio networks. Personal Oracle7, a desktop version of its big brother, was released in 1995.

In fiscal 1996, the Company acquired the Express family of on-line analytical processing (OLAP) software products from Information Resources Inc. for $100 million. These OLAP products enable customers to manage and perform complex analyses of business data. During that year, Oracle won an order from the US Department of Defense to create one of the world's largest human-resource databases, consisting of nearly 2 million current and retired military personnel and their dependents.

In February 1996, the Company announced general availability of Release 7.3 of Oracle7. This release enables easier management and better integration of all enterprise data, including relational data as well as video, audio, text, messaging and spatial information, and facilitates easy integration of Oracle7-based information with the World Wide Web.


For vital financial information since 1992, click the "Selected Financial Data" link in the listbox to the right.


According to the Wall Street Journal, 850 institutions collectively own 57% of ORCL shares. Fidelity, with 9.9% of outstanding shares, is the largest institutional shareholder (source: Value Line). Ellison owns 22.8% of the company (source: 1996 proxy statement), and other executive officers and directors own 0.5%.

We're strictly in big-cap land with Oracle. At today's price, the company is capitalized at over $32 billion -- or around 5.6 times projected FY97 revenues of $5.8 billion.

According to First Call, 23 analysts follow Oracle. They forecast the company to make EPS of $1.28 in FY97 (ends in May), which would constitute a 35% gain over FY96's $0.95. Current estimates for FY98 are in the $1.55 to $1.80 range (mean = $1.69).

At its current price of approximately $48 (a fraction below its all-time high), ORCL is trading at 37 times projected FY97 earnings per share and approximately 28 times FY98 EPS. Analysts expect EPS to grow at an annual rate of approximately 31% percent over the next five years. The stock is therefore trading at a multiple roughly equal to its near-term EPS growth and perhaps a bit above its longer-term growth. It's therefore no great bargain; on the other hand, it's not nearly as over-priced as many lower quality stocks -- or many stocks of equal quality but with far lower growth prospects, for that matter.

Sharp-eyed, quick-acting investors may prefer to wait for a dip to buy. I've decided that a few points one way or the other won't matter over the long haul; and ORCL is one of those stocks that many institutions and individual investors hold "forever." With good reason, too: $10,000 invested in ORCL in mid-1991 was worth approximately $200,000 five years later.

Analysts' current consensus rating for Oracle is 1.3, a "strong buy." The stock is one of S&P's 5-star recommendations. Investor's Business Daily scores the stock 99 on EPS (Earnings Per Share rank) out of 99 possible, 86 on Relative Strength, and "A" on Accumulation/Distribution. Average daily volume over the past month is 3.6 million shares. The stock's beta is, perhaps surprisingly, right in line with the market: 1.01.

I foresee good fortune for the Borefolio from Oracle.

--Greg Markus (MF Boring)