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FINANCE 295: ORACLE CORPORATION

FINANCE 295: ORACLE CORPORATION. PRESENTED BY: SAURIN MEHTA CRAIG COHEN MARCH 2, 2000. ORCL: Quick Facts. Initial public offering in 1986 Current corporate headquarters are in Redwood City, CA World’s largest maker of database management systems (DBMS)

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FINANCE 295: ORACLE CORPORATION

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  1. FINANCE 295: ORACLE CORPORATION PRESENTED BY: SAURIN MEHTA CRAIG COHEN MARCH 2, 2000

  2. ORCL: Quick Facts • Initial public offering in 1986 • Current corporate headquarters are in Redwood City, CA • World’s largest maker of database management systems (DBMS) • World’s second largest software company • Over $9.3 billion in revenue over past 4 quarters • Over 43,000 employees – Lawrence J. Ellison CEO/Chairman • $10,000 invested in 1994 would be worth over $900,000 today • We are looking at a ten year time horizon for this stock

  3. ORCL: Business Description • Five Major Software Products • Oracle Application Server – combines Oracle DB technology with the Internet to form a cross-platform environment • Oracle Applications – helps companies who wish to improve and streamline their operations to transform into an e-business • Data Warehousing and BIS – complete data warehousing solution with the Oracle DB and over 60 3rd party programs • Oracle DB – flagship product – relational DB that allows users to manipulate data by using SQL language • Oracle Tools – mainly Internet based – helps build and complement a company’s Web applications and DB

  4. ORCL: Business Description Contd. • Non-software products • Oracle Alliance Program • Oracle Consulting • Oracle Support Services • Oracle Education – world’s largest IT training provider • Venture Capital Fund • Invests in small Internet companies with the hopes of them one day becoming customers • Oracle is the firstsoftware company to deploy 100% Internet enabled enterprise software across its entire product line • Oracle is currently the only company offering complete e-business solutions

  5. ORCL: Oracle in the News • Acquired Datalogix International 1997 – enhance company’s technology offering in the consumer packaged goods industry • Acquired Treasury Services Corporation 1998 – enhance company’s offering in the financial services industry • Deal with Sears Roebuck and Carrefour Supermarche SA to launch the first global online exchange for the retail industry • Deal with Ford to provide software, consulting and hosting for the entire business supply-chain • Alliance with Novistar to offer its products to the energy industry • Alliance with Telia to provide mobile Internet service in the international marketplace

  6. ORCL: Who Uses Oracle? • According to Morgan Stanley Dean Witter • 24 of the top 25 Internet companies by market capitalization are Oracle customers • According to USA Today e-Business Composite • 48 of the top 50 companies are Oracle customers • According to USA Today e-Consumer Composite • 44 of the top 50 companies are Oracle customers • 93% of all Public.com companies run Oracle • 65 of Fortune 100 companies use Oracle for e-businesses

  7. ORCL: Oracle’s Market Share Source: Oracle’s Corporate Website www.oracle.com

  8. ORCL: Insider and Institutional Holdings • Officers and Directors own approximately 25% of the stock • 15 sell transactions in the past 6 months • 2.34 million shares were sold in the time period • 1,616 Institutions Hold approximately 49.0% of the stock • Massachusetts Financial Services 106 million shares • Barclays Bank 85 million shares • Putnam Investment Management 53 million shares • Fidelity Management 46 million shares • Vanguard Group 45 million shares • Institutions have purchased 67.6 million shares over the last quarter

  9. ORCL: Income Statement Analysis

  10. ORCL: Income Statement Analysis Contd.

  11. ORCL: Balance Sheet Analysis

  12. ORCL: Common Size Balance Sheet

  13. ORCL: Cash Flow Analysis

  14. ORCL: Key Financial Ratios

  15. ORCL: Other Key Financial Stats • 52 Week Low - $10.50 52 Week High - $76.50 • Beta – 1.67 52 Week Change – 304.5% • Daily Volume – 21.9 million shares (3 month average) • Market Capitalization - $201.7 billion • Shares Outstanding – 2.82 billion • Price / Earnings Ratio – 157.98

  16. ORCL: Recent Earnings Surprises

  17. ORCL: How It Fares vs. Competitors

  18. ORCL: Application License Growth

  19. ORCL: Revenue Growth

  20. ORCL: Broker Recommendations • 35 brokers are covering the stock • Average recommendation = 1.53 • 15 brokers – Strong Buy • 18 brokers – Moderate Buy • 2 brokers – Hold • Notables: • A.G. Edwards Strong Buy • Credit Suisse First Boston Buy • Deutsche Bank Securities Buy • Goldman Sachs Strong Buy • J.P. Morgan Strong Buy • Merrill Lynch Strong Buy • Salomon Smith Barney Buy • Warburg Dillon Read Strong Buy

  21. ORCL: Fiscal Year 2000 Quarter 2 • Fiscal Year 2000 Quarter 2 results released December 14 • Actual earnings of $0.13 v. estimates of $0.11 • Compared to earnings of $0.095 the same period one year ago • Total revenue grew to $2.3 billion • Compared to $2.1 billion the same period one year ago • Net income increased 40% to $384 million • Compared to $274 million the same period one year ago • Software license revenue grew 18% compared to last year • Database software sales increased 17% to $651 million • Application software sales increased 31% to $168 million • Service revenue grew 10% to $1.4 billion • Next earnings announcement is March 14, 2000

  22. ORCL: Initiatives for 2000 • Application outsourcing – Oracle runs its software on its computers and lets customers use the applications for a monthly fee • Moving operations to the Internet to enhance efficiency • Customers can add users and buy software over the Web • Expected to reduce the cost structure by $1 billion • Continuing to offer complete e-business solutions for customers • Providing software, consulting and hosting for all operations • Everything from front-door customer relationships to back room operations and platform designs

  23. ORCL: What the Future Holds • Revenues are expected to grow at record rates • Internet is the second industrial revolution • More and more businesses will have to go online to survive • Revenues from application outsourcing are expected to grow • Many small businesses cannot afford the complete system • Allows customers the same services without high fixed costs • Moving more operations to the Web will increase overall efficiency • Savings are expected to be $1 billion • Serving those markets which are expected to explode by 2003 • Customer Relationship Management $16.8B (49% CAGR) • Supply Chain Applications $19.7B (48% CAGR) • Internet Procurement Applications $5.3B (82% CAGR)

  24. ORCL: Stock Price Projections • Assume sales grow at 20% annually • Most expenses remain the same as a percentage of revenues • Cost of goods sold is adjusted for $1B cost reduction • Current P/E ratio is approximately 140 • Assume it reduces to a more reasonable level of 90 by 2010 • EPS in 2000 = $0.57 Stock Price in 2000 = $79.80 • EPS in 2001 = $0.69 Stock Price in 2001 = $93.15 • EPS in 2002 = $0.83 Stock Price in 2002 = $107.90 • EPS in 2009 = $2.96 Stock Price in 2009 = $281.20 • EPS in 2010 = $3.55 Stock Price in 2010 = $319.50 • Ten Year Average Annual Rate of Return = 17.3% • Assumes purchase price of $65 per share

  25. ORCL: Stock Price Projections Contd. • Assume sales grow at 30% annually • Most expenses remain the same as a percentage of revenues • Cost of goods sold is adjusted for $1B cost reduction • Current P/E ratio is approximately 140 • Assume it reduces to a more reasonable level of 90 by 2010 • EPS in 2000 = $0.57 Stock Price in 2000 = $79.80 • EPS in 2001 = $0.86 Stock Price in 2001 = $116.10 • EPS in 2002 = $1.03 Stock Price in 2002 = $133.90 • EPS in 2009 = $3.70 Stock Price in 2009 = $351.50 • EPS in 2010 = $4.44 Stock Price in 2010 = $399.60 • Ten Year Average Annual Rate of Return = 19.9% • Assumes purchase price of $65 per share

  26. ORCL: How Does It Look within CAPM? 17.3% 11.7% 9% 5%  = 0  = 1.0  = 1..67 • Assumes risk free rate of 5% and market return of 9% • Expected return = 5% + 1.67 * (9% - 5%) = 11.7% • Oracle’s expected return = 17.3% • Alpha =  = 17.3% - 11.7% = 5.6%

  27. ORCL: Conclusion / Recommendation • Oracle’s revenues will soar as e-business continues to expand • Dominant leader in markets with enormous growth potentials • Only software company to offer complete e-business solutions • Alliances have diversified Oracle’s operations into other high-growth, technology markets (ex. wireless Internet) • Very strong revenue and earnings growth over the past several years • Moving operations to the Web to help reduce costs – save $1 billion • Projected annual returns of between 17% and 20% • RECOMMENDATION: BUY 400 SHARES @ $62.50

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