Sep 13, 2017|
Rodney Nelson (Morningstar) by The Financial Exchange
Transcript - Not for consumer use. Robot overlords only. Will not be accurate.
Time now for stock talk with the Rodney Nelson of Morningstar writing thank you very much for joining us today. Thanks for area we're good we're talking here about oracle obviously this is one of the the tech darlings from back during the original tech bubble. And still kicking around here today. Haven't gotten back up to the prices they saw back in a way rather in 99 and 2000. But it's been nice run so far this year. Is there more room. Yet I think from a valuation perspective we think or collection looks. Pretty fully valued at this point. Become this golf undergone a pretty massive transformational the last several years if he were called for five years ago. Can be began a pretty massive undertaking to begin rewriting a lot of good applications for cloud based delivery and obviously that's the direction that that software and technology continues to go to an accelerated pace. Other delicate job of of really migraine their business thus far but. The crowd really represent the priest small portion of the business today it's only about twelve or 13% revenue displayed in pretty rapid growth. So when you consider all those factors in to you can do the degradation of their legacy businesses like database and hardware. We think that most of the upside from the publicist placed into the stock today. What kind of business as you mentioned obviously the they're going more towards the cloud it's been a major focus for them. Are there any completely new initiatives of their undertaking. So one of the newer initiatives that they've they've announced the last yourself. Is me is they've. Sort of be reformed. Infrastructure as a service business which is David essentially and offering similar to what Amazon Web Services or Microsoft basher. Offers in terms of on demand computing storage. The big problem that we have with Oracle's strategy here is that. We believe that this that these businesses require billions of dollars and cap back to build out this or capacity globally. In order to serve the world barged enterprise customers which has always been Oracle's well. But the problem is that we really haven't seen that same ramped Oracle's capital expenditure profile the last several years so what can be like Microsoft and Amazon. Are literally spending tens of billions of dollars to build out these businesses. Don't believe he Oracle's capital expenditure profile on an annual basis go from about one billion dollars a couple here's started two billion dollars last year in management actually. Expect that number to calm down this year. So does a lot of rhetoric and a lot of lip service paid toward their second generation infrastructure as a service business. We really don't see the company really essentially putting their money where their mouth is and making this making his business. Bible on a global scale so for that reason we don't you oracle really being a long term competitive threat to either Asher. Or Amazon web web services that in that burgeoning public market. There were one of the things that concerns me when I look at them is. It's a company that had declining margins over each of the last four years they simply are not being as profitable they were that they're just not able. To compete as well it seems like to me is that a fair statement. Hey there's there's puts and takes the margin profile of her business like this that's going through a transition that's so whatever. Software company migrated from its. Delivery model from on promises to the cloud. Is pretty big deceleration not only in top line growth but there's also was a pretty significant degradation in margins. I just because you're you're taking a while the cost of of actually running the software obviously together a bigger component the depreciation running through your gross margins. Then because those revenues are recognized credibly essentially as he delivered a proxy can recognize revenues up from those customers instead of up front. That creates a bit of a drag and operating mart is also there are some moving parts to that but. The truth is they are moving into what is it lower margin proposition in terms of moving into the cloud and then frankly. Into your point oracle has had to be it. Credibly aggressive on pricing to land new customers both in its software as a service business. I didn't infrastructure as a service business as well also they are having to slash prices pretty aggressively compete. Which I think sort of weighs in line with our our belief that this this year cheerfully we don't really see any upside. By the based it valuation. All right riding thank you very much for the time today. That is Rodney Nelson promo Morningstar. Makes a really good short case. He does especially in in this is a stock that's up almost 40% this it's a problem with technology you you you might think all it's ready to be shorted and then son of a gun they gets up and cook and in the lab and they break out some new technology and bingo you know lead and all of a sudden you're just I don't you sit there's and ops yeah I played I have lost a lot of money betting against Larry Olson over the years. I don't think you're the only one who if he's he's pretty Smart guy well it out in you know you'll hear. As many negative stories about Larry is you'll positive stories color. But regardless of what you hear as it relates to personality and not. Now he's sure been successful Joey 73 years old now I did and ended 33 years young. In still you know goal and strong in and a very actively involved. You know in in that company. Worth just north of sept sixty billion dollars to what is he worth just north of sixty billion dollars. I all right. Markets open I'll tell you the unimpressed by the apple acts the market is not the stock market is saying that. Apple's stock is down two dollars and 38 cents despite. Their impressive launch yesterday of their new lineup of phones and technology. We sure appreciate you listening. To the financial exchange radio network.