Oracle Corporation (ORCL): A Software Powerhouse with Upside Potential

Oracle Corporation (NASDAQ:ORCL) is an American-based computer technology corporation that manufactures and markets computer hardware systems and enterprise software products. It is a leading provider of database, business application software and hardware systems used by organizations all over the world. After Microsoft Corporation (NASDAQ:MSFT) and International Business Machines Corp. (NYSE:IBM) , Oracle Corporation (NASDAQ:ORCL) is the third largest software maker by revenue.

Fundamental analysis

Before deciding to invest in a company, first we have to see how well the company has performed. For the third quarter that ended in Feb. 2013, Oracle reported a decline in revenue of 1% year-over-year, reaching $9 billion. New software licenses and cloud software subscription revenues have fallen 2% to $2.3 billion. Software license updates and product support showed some improvement, with income up 7% to $4.3 billion from a year ago. Oracle Corporation (NASDAQ:ORCL) generated $671 million from hardware systems, down from $869 million a year ago. The company’s revenue growth shrunk due to a decrease in hardware sales. International Business Machines Corp. (NYSE:IBM) also faced a decline in its hardware sales in the first quarter of 2012, reporting a 17% drop in sales.

Oracle is facing several challenges from companies like salesforce.com, inc. (NYSE:CRM), which offers CRM products. For the current quarter, Oracle Corporation (NASDAQ:ORCL) president Safra Catz expected revenue growth in the cloud and software license in the range of 1%-11%, whereas she estimated a fall in hardware revenue in the range of 12% to 22%.

Due to unsatisfactory third quarter earning results, Oracle’s share price has fallen by nearly 7% in the last three months. Shares of Oracle Corporation (NASDAQ:ORCL)’s main competitors International Business Machines Corp. (NYSE:IBM) and SAP AG (NYSE:SAP) , a German software company, have acted in the same way. Stock prices for both IBM and SAP fell almost 3.2% and 5.5% respectively.

In the first quarter of 2013, International Business Machines Corp. (NYSE:IBM) reported revenue of $23.4 billion and a net income of $3 billion, down 20% and 48% respectively quarter-over-quarter. This decline in revenues resulted in the biggest single-day drop in share price that the company has had in a number of years. This shows that even Big Blue is not safe from the global recessionary environment. The recent decline in profitability and revenues is a cyclical trend and not a long-term factor, however. IBM is still among the best long-term technology bets, even after a bad quarter.

In the first quarter of 2013, SAP AG (NYSE:SAP) reported revenue of $3.6 billion, up 8.3% quarter-over-quarter and an operating profit of $9 billion, up 8% over the previous quarter.

ERP market

SAP and Oracle are more focused on beating each other in the enterprise resource planning market, which surged 2.2% in 2012. SAP AG (NYSE:SAP) is still the global market leader with a 24.6% market share. In 2012, SAP generated $6 billion from ERP software, while Oracle Corporation (NASDAQ:ORCL) and its 12.8% market share reported $3.12 billion in revenue. It is estimated that the CRM market could reach $7.9 billion in 2016, an annual growth of 15% from $3.9 billion in 2011.