NetSuite was co-founded by Oracle’s Larry Ellison.Thus, Larry is a major shareholder in NetSuite and benefits from the rise of the stock’s price. Would this fact make Oracle Corporation (NASDAQ:ORCL) look to purchase NetSuite? I don’t think that at current prices it is a plausible scenario. In addition, if such an offer were made, Oracle would have to battle in numerous lawsuits for overpaying for NetSuite in favor of Ellison’s stake.
I cannot think of a bidder for NetSuite. The big companies who sell their CRM and/or ERP solutions do not need other systems to sell. There would be no synergy in such an acquisition.
Bearish for Salesforce
Salesforce, which trades at 65.7 forward P/E, is a growth stock. The company is valued more conservatively than NetSuite. This is expected, because Salesforce has almost 10 times more sales than NetSuite. Nevertheless, the market expects good growth from Salesforce. Otherwise, why the stock is pricey?
Salesforce was active in trash-talking Oracle and dreaming of becoming the dominant player in the field. It seems like the company has done a reality check and found that it needs to manage its costs in order to improve profitability. The partnership with Oracle suggests that Salesforce has become more modest in its ambitions. Not good given the price of the stock.
Good for Oracle and Microsoft
The Oracle-Microsoft deal is a partnership of equals. Microsoft, which is having a good year, strengthens its cloud presence. Despite the fact that its stock has risen 30% this year, Microsoft is still attractively priced with an 11.2 forward P/E. The stock yields 2.68%. Microsoft could be getting more market share with its Microsoft Dynamics CRM, as it is focused on small and mid-sized businesses who do not need the full power and sophistication of Oracle’s and SAP‘s products. Its Office family smoothly migrates to the cloud, which would help boost earnings in the long term.
Oracle Corporation (NASDAQ:ORCL) gets a chance to compete on Microsoft platform, which can potentially lead to bigger sales if Oracle succeeds on this front. The deal with Salesforce secures a big client for almost a decade. Oracle got hit after its recent earnings report, and looks attractive with 10 forward P/E and an increased 1.52% dividend yield.
Do not forget about Oracle’s $12 billion buyback plan. The tech giant has priced a $2.6 billion debt offering to help finance this plan. In the meantime, there are constant rumors that a sizable amount of Oracle’s salesforce is leaving the ship. The company blamed sales execution for its quarterly miss, and one can speculate if the problem continues in the current quarter.
Bottom Line
After a pullback, Oracle Corporation (NASDAQ:ORCL) presents a buying opportunity. The company has made smart moves to solidify its position in the cloud business. Microsoft looks attractive too, given the dynamics of this year.
Salesforce, which is down 9% this year, starts to realize that not everything is rosy. When more investors realize that, the stock would fall further. NetSuite investors rely on the takeover story. There is no way the company can justify its price otherwise.
Vladimir Zernov has no position in any stocks mentioned. The Motley Fool recommends Netsuite and Salesforce.com. The Motley Fool owns shares of Microsoft and Oracle..
The article Is a Flurry of Partnerships Good for Oracle? originally appeared on Fool.com.
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