Morningstar | Wide-Moat Oracle Will Strive to Get Its Head Into the Cloud. Lowering FVE to $46
The rise of alternatives to Oracle’s core offering, on-premises relational databases, has created uncertainty around the company’s long-term future in the software ecosystem. Companies continue to shift some relational database workloads to the cloud and are exploring ways to use new nonrelational database solutions like NoSQL and Hadoop. Despite these headwinds, we believe that Oracle will still play a vital role in software for many large companies and that it still warrants a wide economic moat rating.We believe that Oracle has been relatively slow to react to these challenges and will likely continue to lose market share as database growth at large cloud vendors like Amazon Web Services outpaces Oracle's growth rate. According to Gartner, the overall database management market is expected to grow from $39 billion in 2017 to $68 billion in 2022. Oracle's strength is in relational databases, used to organize and access data tables using SQL queries. The growth rate of nonrelational databases will greatly exceed the pace of relational databases (36% versus 9%) through 2022, but the relational database market is still significantly larger today and should remain relevant in the long term. We suspect that growth in relational databases will continue to come from the cloud, as it has in recent years. Oracle has underinvested in its cloud offering compared with peers like Amazon or Microsoft, and we foresee the firm continuing to play catch-up. That said, Oracle has seen 30% plus revenue growth on average in that business over the past three years, and the growth of this business is expected to continue.Oracle also has a large enterprise resource planning business, or ERP, with $4 billion in revenue making up 10% of Oracle’s revenue. The firm offers both on-premises and cloud ERP solutions. Though we estimate that revenue is evenly split between the two now, the mix will favor the cloud business, which grew at 30% in the first quarter of fiscal 2019. Oracle also offers human capital management, finance, and supply chain management tools that can be integrated into its ERP offering, allowing Oracle’s suite of products to run a company’s entire back office.Oracle provides products and services that address enterprise information technology (IT) environments. The company's products and services include applications and infrastructure offerings. The company's cloud and license business engages in the sale, marketing and delivery of its applications and infrastructure technologies through cloud and on-premise deployment models including its cloud services and license support offerings; and its cloud license and on-premise license offerings. The company's hardware business provides Oracle Engineered Systems, servers, storage, industry-specific hardware, operating systems, virtualization, management and other hardware-related software to support diverse IT environments.
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