Oracle (ORCL, Financial) is one of the most profitable software companies in the world. It has a diversified business model, insulating against market downturns. Since the start of the year, though, tech stocks have been trending downwards, and it doesn't look like things will change anytime soon.
Yet Oracle is still executing well for its part. The company makes money primarily by offering its software products and services to enterprise customers on a subscription basis. The company has a wide moat as its products are mission-critical for its customers and switching costs are high. In addition, Oracle has been investing in cloud infrastructure and applications in a growing market.
Oracle is one of the rare companies investing capital in this environment. It recently closed a massive $28 billion acquisition of electronic health records company Cerner. This was a savvy move that will help the tech giant expand its reach into the health care industry. With the health care industry undergoing rapid change, Oracle's move into this space will likely pay off handsomely in the coming years.
As a result, I believe Oracle is well positioned to continue growing its profits even in an economic downturn.
Delivering on the health care front
The health care industry is growing rapidly, and a lot of data must be managed. Oracle has the experience and the resources to help health care organizations manage their data and improve patient care. In addition, Oracle's products are used by some of the largest health care providers in the world. By investing in health care, Oracle can stay at the forefront of innovation.
In line with this thinking, Oracle's acquisition of Cerner will give it a significant presence in the growing market for electronic health records. Cerner will help Oracle grow in health care as it already offers its services to 27,000 facilities worldwide. It contributed $1.4 billion to Oracle's revenue in its fiscal Q1 2023 earnings, and the numbers are expected to grow further in the coming quarters.
Oracle's cloud revenues are growing, and so is the market
Oracle has long been a major player in the enterprise software market, and its dominance is only likely to continue in the years to come in my opinion. A big part of Oracle's success has been its focus on cloud computing. By making its software available on a subscription basis, Oracle has been able to tap into a much larger market.
The company is also investing heavily in infrastructure as a service, another area of the cloud market that is seeing tremendous growth.
In its most recent quarter, Oracle generated quarterly revenues of $3.6 billion. Although this figure is minuscule compared to Amazon's (AMZN, Financial) AWS, Microsoft's (MSFT, Financial) Azure, and Alphabet's (GOOG, Financial)(GOOGL, Financial) Google Cloud, it is still respectable.
According to a report from Statista, in the second quarter of 2022, global expenditures on cloud infrastructure services alone were close to $55 billion, putting the industry total past $200 billion for the trailing twelve months. The growing demand for cloud services will lead to a 20.4% increase in spending on these products by end users worldwide, reaching $494 billion by 2022, per research from Gartner.
Oracle is well-positioned to continue its rapid growth in the cloud computing market. The company has a strong reputation for delivering high-quality products and services, and Oracle's products are used by some of the largest organizations in the world. In addition, Oracle has a large sales force and a vast network of partners that can help drive the continued adoption of its cloud products and services. As the demand for cloud infrastructure services grows rapidly, Oracle is poised to benefit immensely.
Takeaway
Oracle's stock is down by double digits this year. The market gave a mixed response to the company's Q1 earnings release. However, the company has massive growth potential in my view. Some experts believed that Oracle might follow other giants like IBM (IBM, Financial) and fail to catch up with changing times. However, the company is growing aggressively and is looking to make acquisitions in innovative markets. Oracle's share price has also been depressed due to concerns about the strong dollar, high interest rates and the Russia-Ukraine war, which are all temporary headwinds.
