UNIVERSITY OF OREGON
November 9th, 2010
INVESTMENT GROUP
TECHNOLOGY
Oracle Corporation
HOLD
Stock Data
Price (52 weeks)
Symbol/Exchange
Beta
Shares Outstanding
Average daily volume
(3 month average)
Current market cap
Current Price
Dividend
Dividend Yield
Valuation (per share)
DCF Analysis
Comparables Analysis
Current Price
Target Price
21.11 – 29.82
ORCL/NASDAQ
1.09
5.03 B
36,700,000
153.24 B
$29.25
0.20
0.70%
$22.92
$17.70
$28.74
$20.31
Summary Financials
2010-Q1A
Revenue
Net Income
Operating Cash Flow
7.502 B
1.352 B
2.215 B
BUSINESS OVERVIEW
Oracle Corporation is the world’s largest enterprise software company, and after the acquisition of Sun
Microsystems, Inc. (SUN) in January 2010, Oracle looks to place themselves among the top enterprise
hardware products and services providers as well. Oracle’s operations originally begun in 1977, and
was incorporated in 2005. The company develops software and hardware solutions for businesses, and
Covering Analyst: Kyle Wilson
Email: kwilson1@uoregon.edu
The University of Oregon Investment Group (UOIG) is a student run organization whose purpose is strictly educational.
Member students are not certified or licensed to give investment advice or analyze securities, nor do they purport to be.
Members of UOIG may have clerked, interned or held various employment positions with firms held in UOIG’s portfolio. In
addition, members of UOIG may attempt to obtain employment positions with firms held in UOIG’s portfolio.
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proceeds to manufacture, market and distribute the products they offer. They also offer services
alongside of the products they sell. In fiscal 2009, Oracle’s software, hardware, and services represented
77%, 9% and 14% respectively. The company operates worldwide with both software and hardware
businesses. The software segments revenues are 54%, 33% and 13% in the Americas, EMEA (Europe,
Middle East, Africa), and Asia Pacific respectively.
The Software Business consists of the new software licenses segment, software license updates
segment, and product support segment.
The new software licenses segment includes the licensing of database,
middleware, and applications software. With the acquisition of Sun, Oracle
expanded on their already software licensing and technologies, as well as gained
ownership of the Java technology platform. Oracle’s software is geared towards
helping customers reduce the cost and complexity of their information
technology, therefore making data more readily accessible and helpful to
businesses. The software the company creates allows the customer to utilize the
software they need on either Oracle or Non-Oracle hardware and software components. This helps to
reduce customer risk, supports customer choice, and allows Oracle to manipulate software to the
specific needs of different industries.
The software license updates and product support segments allow existing customers to receive
continued product support and unspecified product upgrades. This includes internet and telephone
access to technical support personnel. These services are usually priced as a percentage of the net
software license fees. The updates and product support segments account for 49%, 50%, and 46% of
total revenues for Oracle in fiscal 2010, 2009, and 2008 respectively.
The Hardware Business is a direct result of the acquisition of Sun Microsystems, and added the
hardware systems products segment and hardware systems support segment.
Oracle offers a range of hardware products that are geared towards helping
customers manage growing amounts of data, meet increasing regulatory
demands, and reduce energy usage, space and operational costs. Included are
servers which use Oracle’s SPARC microprocessor, storage solutions, Solaris
operating system, and other hardware related software. Oracle produced
operating revenues in this segment for the first time during Fiscal 2010, which accounted for 6% of the
total revenues Oracle received.
When customers purchase the company’s hardware systems, they may choose to purchase the support
offerings as well. These provide new software updates that allow the hardware to run optimally.
Hardware systems support accounted for 3% of Oracle’s total revenues in Fiscal 2010.
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The Services Business of Oracle is available so the customers using the hardware and software are able
to get the most out of their products no matter what they’re technical experience level is. This part of
the business consists of the consulting, on-demand, and education segments.
Consulting involves helping streamline businesses with the hardware and software they are
employing. Things such as business process simplification, solution integration, and product
implementation are done through consulting professionals that engage the customers directly.
Consulting accounted for 10% of total revenues in fiscal 2010.
On-Demand involves customers partnering with Oracle’s data center facilities, and having employees
of Oracle help with data management, onsite and remote operations management, and hardware
systems services. This service allows for customers to manage their IT environments flexibly and lower
their cost of ownership. These services develop customer loyalty and develop a competitive advantage
for Oracle. On-demand revenues represented 3% of total revenues in fiscal 2010.
Oracle’s education segment provides training to customers in order to ease the adoption of hardware
and software produced by the company. This can consist of instructor led classes at Oracle education
centers, live virtual training, and self-paced online training. By providing all these modes of education,
the customer is able to customize a program which is best fit for their business. Education accounted
for 1% of total revenues in fiscal 2010.
BUSINESS AND GROWTH STRATEGIES
Over the past three fiscal years, no single customer has accounted for more than 10% of Oracle’s total
revenues. Oracle has realized strong positive margins in all of their business segments for the past three
years, including positive margins in the newly acquired hardware business. The company’s marketing
and sales operations are characterized primarily by worldwide sales and services through subsidiary
sales and service organizations to businesses. These businesses are within a spread of different
industries, government agencies and educational institutions. Along with subsidiary sales, Oracle also
markets and sells through indirect channels.
Within the United States, Oracle has sales and service employees that are headquartered and spread
throughout field offices. Outside of the United States, international subsidiaries license Oracle products
to their countries, as well as within other countries that Oracle does not through a subsidiary. With a
global infrastructure, the geographic coverage allows the company to utilize a wide range of business
and technical expertise. This allows for Oracle to offset geographic-specific economic trends.
The indirect channel network the company has developed is called the Oracle Partner Network. This is
a global program that manages relationships with businesses that include independent software and
hardware vendors, system integrators and resellers who deliver Oracle products to their customers
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based on what is offered and what they need. Before Oracle acquired Sun, all hardware products were
sold through indirect channels. Oracle intends to maintain sales through indirect channels, and has
begun enhancing direct sales coverage in order to grow hardware revenues.
An important factor to Oracle’s growth and corporate strategy is a strong acquisitions program.
Billions of dollars have been spent in order to acquire companies, products, services and technologies
that will complement Oracle’s business. These include Sun Microsystems in fiscal 2010, and BEA
Systems, Inc. in fiscal 2008, and others. Other acquisitions are not significant enough to be noted
separately, but have supplemented the company’s business segments with technological advancements
and expertise. Oracle plans on maintaining a high level of spending to acquire more companies which
will further expand market share and revenue growth
Sun Microsystems, Inc. was acquired for approximately $7.3 billion on January 26, 2010 and had an
estimated contribution of $2.8 billion of total revenues. This estimation includes revenues that are not
individually identifiable due to the integration of software and services. Oracle has claimed to be
making numerous changes to the sales structure of Sun. By ending many reselling agreements, and the
chase for commodity server share, Oracle is refocusing efforts on another part of the market in which
they can provide customers with unique value: Exadata (a function of Oracle databases which allows
for improved storage and query performance). Because of all these changes it becomes meaningless to
view Sun’s historical revenue data as a launching point for future revenues.
BEA Systems, Inc. was acquired in order to expand on Oracle’s offerings of middleware products,
among other things. BEA’s results have been included in Oracle’s financial statements since April 29,
2008, and have helped add value and grow the company’s margins.
Oracle has experienced strong top line performance and positive margins throughout all of its
segments. In comparison to the company’s competitors (IBM and SAP) Oracle’s operating margin
ended up being 39% for the most recent quarter, which is substantially higher than those of its peers.
This is 10% higher than SAP, even with the hardware segment included. For the current quarter
(Quarter 2), Oracle projects revenues total revenue growth to range around 42% to 47%. This has been
factored into the fiscal 2011 revenue projections.
MANAGEMENT AND EMPLOYEE RELATIONS
Oracle has an extremely strong management team, built of people who have been with Oracle since its
inception, and other high powered people who have impressive resumes outside of Oracle. Larry
Ellison and Mark Hurd have been friend’s way before they decided to work together.
Larry Ellison – Co-founder and CEO of Oracle
He has been with the company throughout its lifespan, and knows the business as well as anyone. He
guided the company through the 1990’s and times of adversity where Oracle almost went bankrupt to
a point where Oracle enjoyed industry dominance until the late 1990’s. Larry had also served on the
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Board of Directors for Apple once Steve Jobs returned, but resigned in 2002 claiming he did not have
the time to allocate to the company.
Mark Hurd – President
As Ex-CEO of Hewlett-Packard, the company had been first in sales of desktop computers since 2007,
and laptop computers since 2006. Hurd has an aggressive reputation for cost-cutting, which has
already carried over to his record at Oracle with over 2000 non-profit creating employees will be
replaced with 2000 profitable employees.
Safra A. Catz – President
Safra has been President of Oracle since 2004, and has been on the Board of Directors since 2001. She
also served as Oracle’s CFO from 2005 to 2008, and has a history of management since 1999.
RECENT NEWS
HP Investors’ Lawyer Seeks to Disclose Fisher Letter about Hurd – Bloomberg 11/5/2010
A law firm representing the shareholders of HP is seeking to disclose more information of the alleged
sexual harassment of Mark Hurd. These allegations resulted in Hurd’s resigning from HP. This news
along with the possibility that Hurd’s accuser was given insider information on HP deals is
surrounding Hurd in a negative manor. These are further efforts to sabotage Mark Hurd’s career at
Oracle.
HP and Oracle Fighting Again – The Motley Fool 11/4/2010
Oracle is in the process of suing SAP for copyright infringement. SAP has already owned up to the
misdeed, and the trial is now seeking how much Oracle will be paid. The issue is that Oracle wants to
subpoena HP’s new CEO Apotheker to testify against SAP, and HP will not cooperate with the request.
The request in the end draws attention to why HP hired Apotheker in the first place.
INDUSTRY
Oracle is competing in the U.S. Software Publishing Industry. This industry has been experiencing
dynamic growth over the past 5 years and is considered to be in the strong growth phase of its cycle. It
is characterized by medium revenue volatility, high competition and globalization, and high
technological change. This is an aggressive environment where fast innovation and quick execution is
rewarded.
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As other industries were shaken up by the recession,
the Software Publishing Industry focused on strategic
acquisitions and product development in order to
maintain revenues. In 2006, Oracle purchased Siebel
Systems, a maker of Customer Relationship Management software, and Microsoft followed suit with
similar aggression.
As continued technological development keeps driving innovation during the next five years,
acquisition activity will grow to higher levels. This is because large companies in the industry not only
rely on their R&D, but also being the first to explore technologies that smaller companies may have
developed. Oracle is considered one of the largest players in the Industry, and has 8% market share of
the industry, while Microsoft has 25% and IBM has 7%. In 2010, the total revenues for this industry
were $150.7 billion. Of which 82% is dominated by businesses, 10% are households, and 8% are
governments. Oracle’s business segments are mainly geared towards going after revenues generated
through deals with businesses and government.
There are crucial factors which generate success in this industry. A company must have the ability to
expand or cut operating divisions in line with market conditions. This may require a reallocation of
resources, or large-scale layoffs. Other factors include:
 Effective marketing
 Well allocated technical Research & Development
 Access to highly skilled workforce
 New product patents
 Close Monitoring of competition
Oracle has been able to demonstrate a strong ability in each of these success factors, and will remain
competitive if the company continues to do so.
S.W.O.T. ANALYSIS
Strengths





Strong topline growth
The Acquisition of Sun Microsystems expands existing markets and develops new ones.
Positive operating margins
Strong leadership with new and experienced President Mark Hurd (Ex-CEO of HP)
$4 Billion into research and development
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Weaknesses



Weak multiples in comparison to other companies
IBM and Microsoft have majority of market share
Behind competition in technology of SPARC processor
Opportunities


Hardware business allows for more complete systems services to customers
Industry verticals: telecom, banking, utilities, insurance, life sciences, and more can no longer
afford to do their own software development
Threats





Software is sensitive to piracy
Entering into a developed hardware business
Economic conditions can adversely affect stock prices
Success depends upon ability to develop new products
Cloud computing brings the possibility of lowered software industry performance
CATALYSTS
UPSIDE


Mark Hurd is known for his cost-reducing abilities and great success as upper management
Oracle has a clearly defined path for turning Sun Microsystems and their hardware business
successful
DOWNSIDE


Negative news has been surrounding Mark Hurd for the past few months with no end in sight.
This may detract from the perceived value of the stock and adversely affect the stock’s price.
Industry is riddled with violations of intellectual property, and requires lawsuit after lawsuit.
REVENUES
Revenues are trended for the first year with a combination of earnings call projections and industry
projections. The following 4 years are trended according to industry growth and Oracle’s respective
market share of 8%. I believe that this is a conservative yet accurate way to go about trending revenues
due to the industry environment. Because so much of the company’s growth depends on the future
battles it will have with acquisitions, Oracle could either grow or shrink their market share. Because of
this uncertainty, it is fair to say that their current market share will remain a solid average of the two
possibilities in the future.
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COMPARABLES
When choosing comparable companies it was important to capture companies that are major
competitors within the U.S. Software Publishing industry and are exposed to the same global risks.
Oracle complete business solutions, with products now in both hardware and software. In order to
capture the new hardware business segment risks, Hewlett-Packard was added as a comparable. Also,
companies with similar growth strategies, including tendencies to aggressively acquire company in
order to grow.
International Business Machines Corp. (IBM), 30%
IBM offers a wide range of business solutions to many different
industries around the world. The company’s spread of products include
many different types of software, networking systems, storage systems, and services based on helping
businesses and organizations around the world manage information flows more efficiently. IBM has
long been partnered with many different companies, such as SAP, Cisco Systems, as well as Oracle.
They have been providing hardware systems and services that run Oracle software and applications
directly. As of this last year, the lines between the companies are beginning to blur as Oracle strives to
become competitive in hardware. This sets Oracle’s sights directly on IBM market share. Both Oracle
and IBM have very similar structures, product offerings, and
growth strategies.
Microsoft Corp. (MSFT), 15%
MSFT is a hardware and software giant and has the largest amount of market share within the U.S.
Software Publishing industry. The company has hardware, programs, and applications which are in
direct competition with Oracle. Looking forward, by adding hardware and expanding on their
software technology, Oracle has directly challenged Microsoft in more markets than ever before. With
hardware and software products that are directly geared towards the everyday consumer and not
businesses (such as the Xbox), and their entrance into Cloud computing, MSFT accounts for a lot more
market risk than Oracle. For this reason MSFT is weighted less than other comparable companies.
SAP AG (SAP), 10%
SAP is the smaller of the comparable companies, with a market cap at $53
billion that is approximately 3 times smaller than Oracle. SAP offers a full
range of business solution software and services. They are a good
comparable because they are a foreign company, and capture a good portion of the global risk that
Oracle encounters. However they do not have a hardware segment, and for this reason I weighted the
company less than others.
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Hewlett-Packard Corp. (HPQ), 15%
HP provides enterprise software, storage, servers, and services and competes
directly with Oracle with many of their segments. They are exposed to
similar market risks, as well as growth strategies. By adding Sun
Microsystems, Oracle plans on competing directly with HPQ for their hardware business. However
HPQ also have a consumer hardware product segment that exposes them to risks not incurred by
Oracle.
Cisco Systems, Inc. (CSCO), 30%
“Cisco designs, manufactures, and sells IP-based networking and other
products related to the communications and IT industry and provide services
associated with these products and their use. Our products and services are
designed to address a wide range of customers’ needs, including improving
productivity, reducing costs, and gaining a competitive advantage. In addition, our products and
services are designed to help customers build their own network infrastructures that support tools and
applications that allow them to communicate with key stakeholders, including customers, prospects,
business partners, suppliers, and employees.”
Cisco Systems designs and manufactures IP based networks and other IT products heavily based on
communication. Of all the multiples, Cisco’s are the most similar to Oracle.
DISCOUNTED CASH FLOW ANALYSIS
Beta
Using a 5 year monthly regression of Oracle’s returns vs. the S&P500, I derived a Beta of 1.08. I believe
that this beta successfully captures Oracles risks within the markets they are in.
Cost of Revenue
Oracle has had pretty stable cost of revenue over the past 4 years. As they continue to acquire new
companies and develop the ones that they already have, they will be looking to become more efficient
in the years to come. For this reason I gave the cost of revenue line item a slight down trend.
Sales, General, and Administrative
Because a large part of Oracles business involves acquisitions, the company assumes a lot of risk when
it comes to projecting financial and strategic goals. Acquisitions may involve the manipulation of
business plans in order to optimize new business features, and in turn Oracle risks having higher than
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anticipated costs in general and administrative. In the past 4 fiscal years, Oracle has realized relatively
stable SG&A costs. I have kept SG&A growth stable in order to account for risks.
Research and Development
In the fiscal year 2011, Mark Hurd claimed they will be spending upwards of $4 billion on Research
and Development. Because growing and maintaining R&D is a key to success in this industry, all
companies will have to increase their spending over time to stay relevant. For this reason I have
trended R&D growth with stability.
Amortization of Intangible Assets
Because of the company’s acquisition of Sun and their entrance into the hardware business, Oracle
faces a greater risk of potential write-downs and impairments of inventory, along with higher
amortization from intangible assets associated with this business. Because of the historical trend
upward, and to account for the risk factor stated above, amortization will continue to trend upward
over time and level off at 8.5% in the year 2012. This depicts the possibility of the company mitigating
this hardware business risk over time.
Tax Rate
Historically the tax rate has been close to 30% and trending downward since 2007. However during the
conference call Safra Catz used a GAAP tax rate of 30.5% when projecting numbers. This is the tax rate
I went with to remain in line with GAAP practices.
RECOMMENDATION
I am recommending a Hold for ORCL. My interest in this company began in September when
Mark Hurd joined the management team. ORCL rallied and gained approximately $8 to its
stock price. As of current the stock has stagnant over the past half a month. In the future,
Oracle’s success is based on their ability to continue growing through smart and aggressive
acquisitions, as well as their ability to develop strong revenues through Sun Microsystems
while maintaining strong research and development in their software business. Included in
their success is their ability to mitigate negative news and qualitative factors that surround
Mark Hurd and the company. I feel that Oracle has the ability to do this, and will be a steady
company in the future. However when compared to other competing companies and their
performance within the industry, Oracle is an over-valued company with a falling stock price.
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APPENDIX 1 – COMPARABLES ANALYSIS
The University of Oregon Investment Group
30.00%
($ in millions, except per share data)
Stock Characteristics
Max
Current Price
146.14
50 Day Moving Avg.
136.99
200 Day Moving Avg.
130.19
Beta
1.25
Size
ST Debt
4168
LT Debt
21932
Cash and Cash Equiv.
13279
Minority Interest
401
Diluted Share Count
8726
Market Cap
235166
Enterprise Value
239444
Profitability Margins
Gross Margin
80.16%
EBITDA Margin
45.15%
Net Margin
30.02%
Credit Metrics
Interest Expense (MRQ)
754.00
Debt/Equity (MRQ)
0.152
Debt/EBITDA (LTM)
0.152
EBITDA/Interest Expense (LTM) 55.92
Operating Results
Revenue (LTM)
114600
Gross Profit (LTM)
50089
EBITDA (LTM)
27363
Free Cash Flow (LTM)
17518
Valuation
EV/Revenue
5.84 x
EV/Gross Profit
9.81 x
EV/EBITDA
12.94 x
EV/Free Cash Flow
21.04 x
ORCL
IBM
15.00%
10.00%
15.00%
30.00%
MSFT
SAP
HPQ
CSCO
Min
24.35
25.18
24.65
0.71
Avg.
Median
53.655 36.43
50.763 34.58
49.253 35.275
1.035 1.055
28.74
27.77
24.65
1.09
146.14
136.99
130.19
0.71
26.95
25.18
25.95
1.01
51.63
50.65
46.96
1.13
44.12
41.39
44.60
1.02
24.35
22.6
23.17
1.25
4
699
1661
0
1040.7
53729
51749
2210.5
2473
11220 12884
5840.7 3743.5
89.833
10
4087.9
3782
145488 146849
153167 155806
3145
13579
9914
401
5200.00
149448
156659
4168
21932
2906
118
1273
186036.22
209348.22
1000
4939
1661
0
8726
235165.7
239443.7
4
699
2703
20
1040.66
53729.28
51749.28
1850
13980
13279
0
2364
104299.68
106850.68
3096
12188
4581
0
5924
144249.4
154952.4
22.25% 56.09% 61.19%
13.79% 30.79% 29.28%
6.68% 18.23% 17.89%
59.57%
45.15%
22.87%
45.12%
23.48%
14.02%
80.16%
43.79%
30.02%
66.62%
30.54%
16.38%
22.25%
13.79%
6.68%
62.82%
28.03%
19.40%
402.00 593.00 623.00
0.0131
0.09 0.1089
0.0131 0.091 0.1089
16.06 30.00 18.01
754
0.11
0.112
16.06
402
0.14
0.140
55.92
0
0.03
0.025
0
0.01
0.013
0
0.15
0.152
623
0.11
0.106
18.01
62484
25500
15800
8918
26820
15976
12109
7447
95758
43203
22481
14466
62484
50089
27363
17518
14895
9923.5
4548.6
3065
114600
25500
15800
8918
40040
25152
11222
9165
2.19 x 2.88 x 3.65 x
4.78 x 5.17 x 5.03 x
8.75 x 10.40 x 10.34 x
13.67 x 14.95 x 15.68 x
5.84 x
9.81 x
12.94 x
21.04 x
2.19 x
4.85 x
9.31 x
14.47 x
3.83 x
4.78 x
8.75 x
13.67 x
3.47 x
5.21 x
11.38 x
16.88 x
0.93 x
4.19 x
6.76 x
11.98 x
3.87 x
6.16 x
13.81 x
16.91 x
Metric
Implied Price
EV/Revenue
13.4619799
EV/Gross Profit 14.4939299
EV/EBITDA
22.832993
EV/Free Cash Flow20.0226686
Weight
25.00%
25.00%
25.00%
25.00%
14895
9923.5
4548.6
3065
62911
28938
16460
10283
Price Target
Current Price
Over Valued
17.70
29.47
-39.93%
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APPENDIX 2 – DISCOUNTED CASH FLOWS
($ in millions, except per share data)
2007
17996
Total Company Revenue
% Y/Y Growth
Cost of Revenue
8098
% Revenue
45.00%
Gross Profit
9898
Gross Margin
55.00%
Operating Expenses
SG&A
692
% Revenue
3.85%
R&D
2195
% Revenue
12.20%
Amortization of Intangible Assets
878
% Revenue
4.88%
Acquisition Related
140
% Revenue
0.78%
Restructuring
19
% Revenue
0.11%
Total Operating Expenses
12022
% Revenue
66.80%
EBIT
5974
% Revenue
33.20%
Other (Expense) Income
355
% Revenue
1.97%
Interest Expense
343
% Revenue
1.91%
Pre-tax Income
5986
% Revenue
33.26%
Less Taxes (Benefit)
1712
Tax Rate
29.50%
Net Income
4274
Net Margin
23.75%
Add Back Depreciation and Amortization
1127
% Revenue
6.26%
Add Back Interest Expense*(1-Tax Rate)
261.54
% Revenue
1.45%
Operating Cash Flow
5662.54
% Revenue
31.47%
Current Assets
12883
% Revenue
71.59%
Current Liabilities
9387
% Revenue
52.16%
Net Working Capital
3496
% Revenue
19.43%
Change in Net Working Capital
Capital Expenditures
319
% Revenue
1.77%
Acquistions
3200
% Revenue
17.78%
Unlevered Free Cash Flow
Discounted Unlevered Free Cash Flows
2008
22430
24.64%
9660
43.07%
12770
56.93%
2009
23252
3.66%
9432
40.56%
13820
59.44%
808
3.60%
2741
12.22%
1212
5.40%
124
0.55%
41
0.18%
14586
65.03%
7844
34.97%
384
1.71%
394
1.76%
7834
34.93%
2313
29.50%
5521
24.61%
1480
6.60%
297.02
1.32%
7298.02
32.54%
18103
80.71%
10029
44.71%
8074
36.00%
4578
243
1.08%
8600
38.34%
-6122.98
785
3.38%
2767
11.90%
1713
7.37%
117
0.50%
117
0.50%
14931
64.21%
8321
35.79%
143
0.62%
630
2.71%
7834
33.69%
2241
28.70%
5593
24.05%
1976
8.50%
478.46
2.06%
8047.46
34.61%
18581
79.91%
9149
39.35%
9432
40.56%
1358
529
2.28%
1200
5.16%
4960.46
1
2010
2011-Q1A 2011-Q234E 2011 A + E
26820
7502 21511.22
29013.22
15.34%
-72.03%
-19.79%
8.18%
10844
3395
9733.48
13128.48
40.43%
45.25%
45.25%
45.25%
15976
4107 11777.74
15884.74
59.57%
54.75%
54.75%
54.75%
911
3.40%
3254
12.13%
1973
7.36%
154
0.57%
622
2.32%
17758
66.21%
9062
33.79%
-65
-0.24%
754
2.81%
8243
30.73%
2108
27.10%
6135
22.87%
2271
8.47%
581.52
2.17%
8987.52
33.51%
27004
100.69%
14691
54.78%
12313
45.91%
2881
230
0.86%
7295
27.20%
-1418.48
272
3.63%
1103
14.70%
603
8.04%
83
1.11%
129
1.72%
5585
74.45%
1917
25.55%
74
0.99%
196
2.61%
1795
23.93%
443
24.70%
1352
18.02%
702
9.36%
160.68
2.14%
2214.68
29.52%
30264
403.41%
13800
183.95%
16464
219.46%
4151
112.53
1.50%
785
10.46%
-2833.85
786.98
3.66%
2947.00
13.70%
1790.59
8.32%
91.08
0.42%
451.26
2.10%
15800.40
73.45%
5710.82
26.55%
216.13
1.00%
616.37
2.87%
5310.58
24.69%
1557.00
24.70%
3753.58
17.45%
1691.59
7.86%
508.82
2.37%
5953.99
27.68%
30264
140.69%
13800
64.15%
16464
76.54%
4151
322.67
1.50%
2151.12
10.00%
-670.80
1058.98
3.65%
4050.00
13.96%
2393.59
8.25%
174.08
0.60%
580.26
2.00%
21385.40
73.71%
7627.82
26.29%
290.13
1.00%
812.37
2.8%
7105.58
24.49%
2000
30.50%
5105.58
17.60%
2393.59
8.25%
669.41
2.31%
8168.59
28.15%
23210.58
80%
13055.95
45%
10154.63
35.00%
-6309.37
435.20
1.50%
2901.32
10.00%
11141.44
10152.58
8
9
10
2018 E
2019 E
2020 E
2
2012 E
30419.29
4.85%
13223.27
43.47%
17196.02
56.53%
3
2013 E
31387.32
3.18%
13214.06
42.10%
18173.26
57.90%
4
2014 E
32263.31
2.79%
12621.41
39.12%
19641.90
60.88%
5
2015 E
33163.88
2.79%
12701.77
38.30%
20462.11
61.70%
6
7
2016 E
2017 E
34089.72 35041.53
2.79%
2.79%
12681.37 12653.50
37.20% 36.11%
21408.34 22388.03
62.80% 63.89%
36020.06 37026.05
2.79%
2.79%
12621.43 12577.75
35.04% 33.97%
23398.63 24448.30
64.96% 66.03%
38060.28
2.79%
12243.99
32.17%
25816.29
67.83%
1110.30
3.65%
4471.64
14.70%
2585.64
8.50%
182.52
0.60%
608.39
2.00%
22181.75
72.92%
8237.54
27.08%
304.19
1.00%
851.74
2.8%
7690.00
25.28%
2000
30.50%
5690.00
18.71%
2585.64
8.50%
692.42
2.28%
8968.06
29.48%
24335.43
80%
13688.68
45%
10646.75
35.00%
492.12
456.29
1.50%
3041.93
10.00%
4977.71
4133.33
1145.64
3.65%
4613.94
14.70%
2667.92
8.50%
188.32
0.60%
627.75
2.00%
22457.63
71.55%
8929.69
28.45%
313.87
1.00%
878.84
2.8%
8364.72
26.65%
2000
30.50%
6364.72
20.28%
2667.92
8.50%
700.63
2.23%
9733.27
31.01%
25109.85
80%
14124.29
45%
10985.56
35.00%
338.81
470.81
1.50%
3138.73
10.00%
5784.92
4377.26
1177.61
3.65%
4742.71
14.70%
2742.38
8.50%
193.58
0.60%
645.27
2.00%
22122.95
68.57%
10140.36
31.43%
322.63
1.00%
903.37
2.8%
9559.62
29.63%
2000
30.50%
7559.62
23.43%
2742.38
8.50%
691.70
2.14%
10993.70
34.07%
25810.65
80%
14518.49
45%
11292.16
35.00%
306.60
483.95
1.50%
3226.33
10.00%
6976.83
4810.59
1210.48
3.65%
4875.09
14.70%
2818.93
8.50%
198.98
0.60%
663.28
2.00%
22468.53
67.75%
10695.35
32.25%
331.64
1.00%
928.59
2.8%
10098.40
30.45%
2000
30.50%
8098.40
24.42%
2818.93
8.50%
701.83
2.12%
11619.16
35.04%
26531.10
80%
14923.75
45%
11607.36
35.00%
315.20
497.46
1.50%
3316.39
10.00%
7490.12
4706.13
1244.27
3.65%
5011.19
14.70%
2897.63
8.50%
204.54
0.60%
681.79
2.00%
22720.80
66.65%
11368.92
33.35%
340.90
1.00%
954.51
2.8%
10755.31
31.55%
2000
30.50%
8755.31
25.68%
2897.63
8.50%
709.36
2.08%
12362.29
36.26%
27271.77
80%
15340.37
45%
11931.40
35.00%
324.04
511.35
1.50%
3408.97
10.00%
8117.93
4647.89
1314.73
3.65%
5294.95
14.70%
3061.70
8.50%
216.12
0.60%
720.40
2.00%
23229.33
64.49%
12790.72
35.51%
360.20
1.00%
1008.56
2.8%
12142.36
33.71%
2000
30.50%
10142.36
28.16%
3061.70
8.50%
724.58
2.01%
13928.64
38.67%
28816.04
80%
16209.02
45%
12607.02
35.00%
342.48
540.30
1.50%
3602.01
10.00%
9443.85
4489.83
1389.20
3.65%
5594.86
14.70%
3235.12
8.50%
228.36
0.60%
761.21
2.00%
23452.74
61.62%
14607.53
38.38%
380.60
1.00%
1065.69
2.8%
13922.45
36.58%
2000
30.50%
11922.45
31.33%
3235.12
8.50%
731.86
1.92%
15889.43
41.75%
30448.22
80%
17127.12
45%
13321.10
35.00%
361.98
570.90
1.50%
3806.03
10.00%
11150.52
4401.95
1279.02
3.65%
5151.10
14.70%
2978.53
8.50%
210.25
0.60%
700.83
2.00%
22973.23
65.56%
12068.30
34.44%
350.42
1.00%
981.16
2.8%
11437.56
32.64%
2000
30.50%
9437.56
26.93%
2978.53
8.50%
716.91
2.05%
13133.00
37.48%
28033.22
80%
15768.69
45%
12264.54
35.00%
333.14
525.62
1.50%
3504.15
10.00%
8770.09
4575.61
1351.45
3.65%
5442.83
14.70%
3147.21
8.50%
222.16
0.60%
740.52
2.00%
23481.92
63.42%
13544.13
36.58%
370.26
1.00%
1036.73
2.8%
12877.66
34.78%
2000
30.50%
10877.66
29.38%
3147.21
8.50%
732.15
1.98%
14757.03
39.86%
29620.84
80%
16661.72
45%
12959.12
35.00%
352.10
555.39
1.50%
3702.60
10.00%
10146.94
4395.93
12
Oracle Corporation
university of oregon investment group
http://uoig.uoregon.edu
APPENDIX 3 – DISCOUNTED CASH FLOWS ANALYSIS ASSUMPTIONS
Assumptions for Discounted Free Cash Flows Model
Tax Rate
30.50% Terminal Growth Rate
Risk-Free Rate
4.10% Terminal Value
Beta
1.09 PV of Terminal Value
Market Risk Premium
7% NPV Free Cash Flows
% Equity
91.86% Firm Value
% Debt
8.14% LT Debt
Cost of Debt
7% Cash
CAPM
11.73% Equity Value
Terminal WACC
11.17% Diluted Share Count
Market Cap
153244 Implied Price
WACC
9.74% Current Price
RF Rate
2.50% Under (Over) Valued
3%
140554.97
48744.21
84000.35
132744.56
13579
9914
119165.56
5200.00
22.92
29.25
-21.65%
APPENDIX 4 – BETA SENSITIVITY ANALYSIS
Beta
1.29
1.24
1.19
1.14
1.09
1.04
0.99
0.94
0.89
St. DeviationImplied Price Under (Over) Valued
2.00
21.91
-25.08%
1.50
22.36
-23.56%
1.00
22.84
-21.91%
0.50
23.37
-20.10%
0.00
23.95
-18.12%
-0.50
24.58
-15.95%
-1.00
25.29
-13.55%
-1.50
26.06
-10.91%
-2.00
26.92
-7.97%
13
Oracle Corporation
university of oregon investment group
http://uoig.uoregon.edu
APPENDIX 5 – REVENUE PROJECTIONS
Revenue Projections
($ in millions, except per share data)
Total Revenues by Geography:
Americas
Revenue
% Net Revenue
% Growth
Europe, Middle East and Africa
Revenue
% Net Revenue
% Growth
Asia Pacific
Revenue
% Net Revenue
% Growth
Total Revenues
2007
2008
2009
2010
2011
2012
2013
2014
9460
35.27%
11330
42.24%
19.77%
11900
44.37%
5.03%
13819 15104.17 15814.06 16272.67 16744.58 17230.17 17729.85 18244.01 18773.09 19317.51 19877.71
51.52% 52.06% 51.99% 51.84% 51.90% 51.95% 52.01% 52.06% 52.12% 52.17% 52.23%
16.13%
9.30%
4.70%
2.90%
2.90%
2.90%
2.90%
2.90%
2.90%
2.90%
2.90%
6037
22.51%
7945
29.62%
31.61%
7948
29.63%
0.04%
8938
33.33%
12.46%
9340.21
32.19%
4.50%
9629.76
31.66%
3.10%
9870.50 10117.26 10370.19 10629.45 10895.19 11167.57 11446.75 11732.92
31.45% 31.36% 31.27% 31.18% 31.09% 31.00% 30.92% 30.83%
2.50%
2.50%
2.50%
2.50%
2.50%
2.50%
2.50%
2.50%
2499
9.32%
3155
11.76%
26.25%
3404
12.69%
7.89%
4063
15.15%
19.36%
4568.84
15.75%
12.45%
4975.47
16.36%
8.90%
5244.15
16.71%
5.40%
17996.00
22430.00
23252.00
5401.47
16.74%
3.00%
2015
5563.51
16.78%
3.00%
2016
5730.42
16.81%
3.00%
2017
5902.33
16.84%
3.00%
2018
6079.40
16.88%
3.00%
2019
6261.78
16.91%
3.00%
2020
6449.64
16.95%
3.00%
26820.00 29013.22 30419.29 31387.32 32263.31 33163.88 34089.72 35041.53 36020.06 37026.05 38060.28
APPENDIX 6 – SOURCES










Reuters.com
BusinessWire.com
Ibisworld
Factset
Yahoo! Finance
Google
SEC.gov
ORCL 10-K
ORCL 10-Q
SeekingAlpha.com (Qtr. 1 Earnings Report)
14