MorningWord 3/18/15: $ORCL – If You Can’t Beat ‘Em, Join ‘Em… And Then Beat ‘Em

by Dan March 18, 2015 9:24 am • Commentary

Back in 2008, then Oracle (ORCL) CEO Larry Ellison had a little fun with the term Cloud Computing, claiming it to be the latest fad in tech writer terminology (listen here) Summary, he boldly asks the question “WHAT THE HELL IS CLOUD COMPUTING?”

But the last few quarterly results from ORCL show how the company is revamping its software sales model to one that includes a surefire way to add market cap to your stock no matter what headwinds your company is facing… software as a service (SaaS). For those that aren’t familiar, SaaS is a buzzword from a few years ago that allows c-level executives at stodgy old software outfits to deflect follow-up questions from analysts trying to dig deeper below the guidance given in constant currency. 

What’s amazing is that ORCL is only expected to grow sales in the low single digits for perpetuity and they haven’t hit double digit earnings growth for three years. But in the last couple quarters the company has shown dramatic growth in selling software as a service as opposed to the old way of merely selling the software.

Ellison has come full circle from his 2008 comments. In the press release detailing Q3 results, he laid down the gauntlet to his former employee and arch rival CEO of, Marc Beinoff.

“We are well on our way to selling over $1 billion of new SaaS and PaaS business in calendar 2015,” said Oracle Chairman and CTO Larry Ellison. “ has announced that it also expects to add about $1 billion of new SaaS and PaaS business this year. So it’s going to be a close race who sells more in the cloud this year, us or them. Stay tuned.”

If you were uncertain of the budding rivalry before last night, there is no mistaking what should be an all out war in the quarters/years to come between these two companies. And this will inevitably lead to margin erosion as both will likely cede portions of profitability in the battle for market share.

Lastly, once the Saas/Cloud/PaaS bubble bursts at least from a sentiment standpoint, I would much rather own a stock like ORCL that trades at 13.5x expected next year’s earnings than a (CRM) that’s trading at 100x. Just saying.