Oracle spikes up 21% following TikTok ‘win’: Where next?

The software company saw its stock open 13% higher in pre-market trading, after reports claiming that it has won the bid to become TikTok’s new US owner.

  • Oracle shares rallied as much as 21% on Monday
  • The Wall Street Journal reported it will be named TikTok US' 'trusted tech partner'
  • This news follows last week's better-than-expected Q1 2020 earnings
  • Analysts say Oracle still 'underperforms peers' in growth figures

Oracle stock rallies 21% in pre-market trading

Shares of Oracle Corporation (NYSE: ORCL) spiked up 21% on Monday 14 September 2020, following reports that it has won the bid for TikTok’s US operations.

The Oracle stock hit a high of US$69 a share in pre-market trading on the IG platform.

According to The Wall Street Journal, Oracle will be announced by the Chinese social media app as its ‘trusted tech partner’ in the US, with the deal likely not to be structured as an outright sale.

Microsoft said earlier on Sunday 13 September 2020 that its bid has been rejected by TikTok’s parent company ByteDance.

Following the reports, Bloomberg Intelligence analysts Anurag Rana and Gili Naftalovich wrote in a note that Oracle’s potential TikTok win ‘could provide a minor boost to its cloud infrastructure services’.

However, they noted that Oracle ‘has a long way to go before it becomes even a top-five player in the (cloud infrastructure) space, given its late entry’ into a market currently dominated by Amazon and Microsoft.

As previously reported, Red Pulse analysts had remarked that ‘Oracle has several qualities that may allow it to succeed in the TikTok's acquisition, outbidding Microsoft and Twitter’.

Oracle had a better-than-expected Q1

Last week, the Oracle stock rallied as much as 8% after its financial results for the August 2020-ending quarter came in better than expected.

The company reported a 2% year-on-year growth in revenues to US$9.4 billion, and 16% annual jump in GAAP (unadjusted) earnings per share (EPS) of US$0.72.

These results beat Wall Street’s sales and EPS estimates of US$9.19 billion US$0.64 per share by 1.9% and 12.4% respectively.

Oracle's board of directors also declared a quarterly cash dividend of US$0.24 per share of outstanding common stock, to be paid to shareholders on 22 October 2020.

Oracle CEO Safra Catz said: ‘Our cloud applications businesses continued their rapid revenue growth with Fusion ERP up 33% and NetSuite ERP up 23%. We now have 7,300 Fusion ERP customers and 23,000 NetSuite ERP customers in the Oracle Cloud’.

Catz also noted that the company’s infrastructure business is ‘growing rapidly’, as revenue from Zoom more than doubled from Q4 last year to Q1 this year. Oracle is the video communications platform’s main cloud infrastructure provider.

‘I have a high level of confidence that our revenue will accelerate as we move on past Covid-19,’ she added.

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What is the latest Oracle stock target price?

Across the board, Oracle currently has a majority rating of ‘hold’ from 19 out of 30 Wall Street brokers polled by Bloomberg.

The stock has also received an average 12-month share price target of US$61.03 per share.

This represents an upside of 7.1% from the last official traded price, indicating that the stock is still not at its peak market value.

In terms of specific price estimates, Societe Generale and Bernstein analysts are the most optimistic of the lot, giving Oracle a target price of US$70 in the long run.

Why FDA analysts say Oracle is 'not a preferred investment'

Meanwhile, FDA analysts wrote that Oracle shares are not among their ‘preferred investment choices’, following the B2B firm’s Q1 earnings release. They priced it at a target of US$66.

The analysts wrote: ‘Oracle's first-quarter earnings report and guidance for the next quarter reflect a continued pattern of moderate growth that underperforms key peers. Improvement may not show in the coming years.’

They noted that while the company still has strong assets, ‘Oracle's competitive position has become more vulnerable, due to the structural shift towards cloud computing, rising usage of open source software and intensified competition'.

Additionally, the company has in recent years created substantial value for shareholders by spending large amounts of cash on share buybacks. This approach, the analysts added, has ‘reduced the financial room for initiatives that help to lift growth and bring down longer-term risks’.

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