Operating performance and margins
Oracle (ORCL) has a market cap of $186 billion. It’s a leading enterprise software company in the world. Currently, it’s undergoing a transition towards cloud. On one side, this put it on par with other technology companies like Microsoft (MSFT), IBM (IBM), and Salesforce.com (CRM). On the other hand, this put some pressure on its margins. Later in this series, we’ll discuss why the transition to cloud puts pressure on margins.
In 3Q15, GAAP (generally accepted accounting principles) and non-GAAP operating income grew to $3.4 billion and $4.2 billion, respectively. The GAAP and the non-GAAP operating margin was 36% and 45%, respectively. Despite flattish revenue growth, Oracle’s integration of its products and offerings led to higher net income growth.
To gain diversified exposure to Oracle, you can invest in the iShares US Technology ETF (IYW). IYW invest about 3.92% of its holdings in Oracle.
R&D and acquisition strategy
Oracle is known for its acquisitions to fund its growth. Since 2009, Oracle spent more than $10 billion on cloud companies. As we’ve mentioned in Oracle’s previous earnings reviews, the company believes in spending on acquisitions as well as R&D (research and development) to expand its reach and hone its domain expertise.
Oracle spends ~12%–13% of its total revenue on R&D. However, for the nine months ending February 28, 2014, Oracle spent 15% of its revenue on R&D—compared to 14% in 2014. Microsoft and SAP spend approximately the same amount of their funds on R&D. However, IBM only allocates 5%–7% of its revenue on R&D.