However, one factor which will act as a headwind to the company is higher pricing of Oracle products. Oracle Corporation (NASDAQ:ORCL) spends approximately $5 billion annually on research and development in the license and software as a service, or SaaS, segment, which is more than the combined revenue of companies like Databax, Salesforce, 10Gen, and Workday. This makes other products in the market cheaper and they have lesser cost of ownership compared to Oracle. In other words, $1 spent on Workday will conceivably eliminate the $5 spent on Oracle.
The purchasing price of a SaaS application includes database, middleware, hardware, and database administration technology. Whereas in the database management space, the pricing structure of the new data management technologies is cheaper than the Oracle environment because they are open-source. This is the most profound risk to Oracle and has led to difficulty in renewing maintenance revenue.
Filled backlog and repurchase plan in the cards
Unbilled backlogs are contracts of customers that are to be billed in the future, and they do not appear in the financial statements. Red Hat Inc (NYSE:RHT) presently has an unbilled backlog record of over $280 million, which is 40% higher than $200 million of the previous year. It is expected that $180 million from this backlog will be billed by fiscal year 2014. The reason for this increment in the backlog is that the company is being awarded with an increasing number of multi-year deals, which will be billed based on the course of the contracts. Its top 30 deals were worth more than $1 million, including six deals above $5 million and three deals more than $10 million. Red Hat Inc (NYSE:RHT) now provides services and solutions to nearly 90% of the Fortune 500 companies.
Red Hat Inc (NYSE:RHT) announced share repurchase on April 15, 2013 worth $300 million. Previously, the company had repurchased its final $179 million of $300 million at $49.15 per share in February 2013. It is using only 23% from its cash and investments, worth $1.3 billion, for allocation. These $300 million sum up to 3% of the 193 million outstanding shares as of February 2013. The reason for this frequent share buyback strategy is that the company has excess cash piles and is capable of increasing funds if required in future.
Conclusion
With Microsoft Corporation (NASDAQ:MSFT) Office 365 at an annualized revenue of $1 billion and Microsoft Azure already crossing the $1 billion revenue mark, the company displays its progress in the cloud and office-suite market.
Red Hat Inc (NYSE:RHT)’s plan of share repurchase makes it an investor-friendly stock; it also has a secured year ahead due to its unbilled backlog.
Oracle Corporation (NASDAQ:ORCL) is focusing on improving its hardware segment and license and software segment in order to boost revenue, which did not show great results in the previous third quarter of fiscal year 2013.
I recommend buy for all these stocks, for long-term gains.
The article 3 Cloud Companies You Must Buy originally appeared on Fool.com and is written by Madhu Dube.
Madhu Dube has no position in any stocks mentioned. The Motley Fool owns shares of Microsoft and Oracle. Madhu is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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