Does Oracle’s Buyout Strategy Affect Investors’ Returns?

Anne Shields - Author

Aug. 18 2020, Updated 6:22 a.m. ET

Oracle has pursued the acquisition route to gain a foothold in the cloud space

Previously in this series, we discussed Oracle’s (ORCL) buyout strategy to boost its presence in the cloud space—especially the marketing cloud. Maxymiser is the latest addition to ORCL’s acquisition portfolio. To be at par with the leading players—namely Adobe (ADBE) and Salesforce.com (CRM)—as well as expand its marketing cloud portfolio, Oracle has been very aggressive on the acquisitions front, as we discussed previously in this series. So how is Oracle financing these acquisitions? Its debt profile has more or less been the same in past couple of years, though Oracle hasn’t revealed whether these company acquisitions or any part of them were funded by debt.

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Oracle’s acquisitions were mostly funded by cash and cash flows

To make up for its late entry into the cloud space, Oracle spent approximately $7 billion on acquisitions during 2013–2015. The majority of these acquisitions were funded by cash and cash flows generated from operations. In the past three fiscal years, Oracle spent approximately 15% of its cumulative cash flow from operations on acquisitions.

During the same timeframe, it returned a cumulative $35 billion in cash to its shareholders in the form of dividends and share repurchases, which is approximately 80% of its cash flow from operations. So it appears that Oracle’s use of cash to fund its acquisitions are judicious as far as returns to shareholders and investors are concerned. However, whether the company’s acquisitions add value depends on their purchase price and integration with Oracle’s comprehensive product portfolio.

You can consider investing in the Technology Select Sector SPDR Fund (XLK) and PowerShares QQQ Trust (QQQ) to gain exposure to Oracle. XLK and QQQ invest about 3.41% and 3.08% of their holdings in Oracle, respectively.


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