Unscrambling Monday's Egg

August 27, 2001 | In Focus Archive »

ORACLE CORPORATION (Nasdaq: ORCL)

Putting Oracle through the Chicks' Dozen
by Chick Cheryl

NOTE: All this month in the Chicks' Eye View we will be featuring the richest of the rich from the Forbes List of the World's Richest People. Since Larry Ellison, the CEO of Oracle, appears on the list, we thought we would update an article appearing nearly a year ago, comparing the company's numbers then to its numbers now.

Years ago, Oracle's CEO, Larry Ellison, was quoted as saying, "If the internet turns out not to be the future of computing, we're toast. But, if it is, we're golden." He had a hunch that his company was in the right place at the right time. I have a hunch he was right.

1. Buy What Ya Know

For me, this is probably the diciest question of the entire dozen. If it isn't a company that makes diapers, Hot Wheels or mini-vans, I'm sort of in the dark these days. Chick Kristin and Chick Jana swear they couldn't live without Oracle in the workplace (see why I love a club? Shared information!). Oracle develops, manufactures, markets and distributes computer software that helps corporations manage and grow their businesses. Most recently, Oracle's biggest thrust has been helping companies transform themselves into e-businesses. Now this I know! With two little ones, I love shopping online. I shop everywhere from Amazon.com to HomeGrocer.com to DixieChicks.com (Check out their "Chicks Rule" t-shirts!).

2. Keep It Simple Sweetie (KISS)

Lets see, I'll have to keep this simple because it's the only way I can understand what it is they do. Oracle provides the software and servers that help businesses run. Software -- even my three year old is familiar with that. I think if I told a 5th grader Oracle helps us to buy books and toys on websites like E-toys he or she might get the idea. And I know shopping online couldn't be easier! It saved my life this past Christmas. How hard is it to learn to "point and click"... my gosh, I taught my son that when he was two!

3. Industry

Oracle's industry is technology; their sector within that industry is applications software. Hmmm? Who competes with Oracle in business software? Did I hear you squeak out "Microsoft"? You got it, Chicky! Bill Gates and Larry Ellison are fierce competitors. In Oracle's case, I think being the underdog has worked out to their advantage, the sights were always set high, and Ellison was always up for the challenge. Because of his competitive instincts I think Larry was willing to "bet the ranch" on the internet and thankfully, it was a darn good bet! Oracle also competes with U.S. companies such as Commerce One, Ariba and IBM.

4. Leader In Its Field

Ya, you betcha! Oracle leads the worldwide market-share in databases and application servers and delivers leading internet platforms for e-businesses. Not only has Oracle proved vital to all the dot com companies, but also to established industrial giants who are transforming themselves into e-businesses. It is the world's leading supplier of software for information management and the world's second largest software company over all. Just recently, Global Finance named Oracle one of the wold's best companies, including them in their list of "Best Global Companies 2000". Their selection criteria was quite broad, covering profitability to product breakthroughs, skill in defusing crises, and aggressiveness in building market share, to name a few.

5. Repeat Profitability

Definitely. Think of newer versions of software. Companies will upgrade, not completely change their existing databases! As far as e-commerce goes Oracle helps companies (for example: EBAY) hold lots of data by using Oracle databases. They charge these companies what they call a "site license fee". Companies call up to renew the license and Oracle says okay and simply collects the cashola!!

NOTE: All new numbers taken from the 5/28/01 Income Statement and Balance Sheet. Compare these to the numbers of a year ago (quarter ending 5/00) and see how their numbers have changed during the down economy.

6. Gross Margins

(Sales - Cost of Goods Sold) / Sales

2000

2001

(3,374.3 - 627.6) / 3,374.32,746.7 / 3,374.3 = .814

.814 x 100 = 81.4%

(3,263.9 - 718.6) / 3,263.9
2,545.3 / 3,263.9 = .779
.779 x 100 = 77.9%

7. Net Margin

How much is 'ole Oracle really making? Again, Larry should be dancing a jig. Oracle boasts a net (profit) margin of 145%. Okay, there may be some extenuating circumstances at play here. Oracle happened to have sold marketable securities in Japan that quarter, boosting their income quite a bit. (Rest assured, however, in the past, Oracle has exceeded our net margin requirement of 8% by large margins.)

Net Income / Sales

2000

2001

4,912.4 / 3,374.3 = 1.45

1.45 x 100 = 145%

854.9/ 3,263.9 = .261
.261 x 100 = 26.1%

8. Cash vs. Long Term Debt

We would like our companies to have at least as much cash as they do long term debt.

Cash* / Long Term Debt

2000	2001
7,429.2 / 300.8 = 24.7x more cash* than debt	5887.7 / 300.8 = 19.5x more cash* than debt

*cash, including marketable securities

9. Flow Ratio

We like to see this number below 1.25. The lower the better.

(Current Assets-cash*) / Current Liabilities - Short Term Debt

2000

2001

(10883.3 - 7429.2) / (5862.2 - 2.7) =

(3454.1 / 5859.5) = .59

(8,963.2 - 5,887.7) / (3,916.6 - 2.8) =
3075.5 / 3913.2) = .79

*cash equiv. and marketable securities

10. Increasing Growth

(Most Recent Quarter Sales - Last Quarter Sales) /Last Quarter Sales

2000

2001

Sales from Q 5/00 = 3,374.3
Sales from Q 2/00 = 2,449.43,374.3 - 2,449.4 = 924.9924.9 / 2449.4 = .38

38% sales increase

Sales from Q 5/01 = 3,263.9
Sales from Q 2/01 = 2,674.4
3,263.9 - 2,674.4 = 589.5
589.5 / 2,674.4 = .22
22% Increase in Sales

11. Strong Management and History I heard one day when Oracle's stock was up just under two points, that CEO Larry had made 1.3 billion dollars! Sheeeeez... Ya think he has a personal stake in the company? He actually owns 24% of Oracle. Despite the rumors that he may harbor a few unsavory qualities such as being brash, unpredictable, bad-tempered, and vain, he's undoubtedly a strong leader. He is fiercely competitive (just ask his fellow yacht racers or Bill Gates) and he has a unique ability to motivate employees and partners toward a common vision (or so they've said).

As far as operating history goes, I think I'll let one of Oracle's loan officers answer this one for me. After all, you know what kind of background checks those guys do before they hand over the almighty dollar! My husband was on a flight to his home state of Iowa back in 1995, and sat next to a guy that worked for a bank that loans Oracle money. They were his number one account. When asked what he thought of it, he said, if you saw their balance sheet you'd buy as much as you can as often as you can! At that point, we didn't know how to (or care to) decipher a balance sheet, but we sure bought their stock. Thankfully, I've now learned how to read a balance sheet and an income statement and run the rest of those equations up above. Amazingly, their financial statements continue to improve (a trend we like to see). No wonder the Chicks added Oracle to our nest on 12/7/99. Oops, I didn't realize that was Pearl Harbor Day... let's hope it doesn't bomb! (He he.sorry.)

12. Buy on Sale

2000	2001
52 week high: 92.93 52 week low: 18.28 52 week average: 55.60 Current stock price (as of 9/29/00): 78.75	52 week high: 46.47 52 week low: 13.00 52 week average: 29.74 Current stock price (as of 8/27/01): 15.19