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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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slide1

FINANCE 295:

ORACLE CORPORATION

PRESENTED BY:

SAURIN MEHTA

CRAIG COHEN

MARCH 2, 2000

slide2

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
slide3

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
slide4

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
slide5

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
slide6

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
slide7

ORCL: Oracle’s Market Share

Source: Oracle’s Corporate Website www.oracle.com

slide8

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
slide15

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
slide20

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
slide21

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
slide22

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
slide23

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)
slide24

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
slide25

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
slide26

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%
slide27

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