In every family, there are two types that tend to disagree at the kitchen table. Think of one as the young professional who loves to brag about the new software company (aka toy) that he just made. The other is the aging grandfather who has a scorn for new-fangled technology and still cherishes the old days.
In fact, grandpa probably scoffs at tablets and boasts about how he still uses his typewriter. This leads to tension and fierce debate between the two generations over who sports the better tool. In the end, though, grandpa eventually admits his typewriter could use an upgrade.
In the tech world, this has been going on for a while, with Oracle Corporation (NASDAQ:ORCL) insisting it is still hip and with it. But quietly, it’s admitting the young whippersnappers salesforce.com, inc. (NYSE:CRM) and Workday Inc (NYSE:WDAY) are probably right on with their big cloud computing software.
The reality
Of course, like a typical grandpa, Oracle Corporation (NASDAQ:ORCL) denies there is anything wrong. In fact, despite its lousy 4th quarter, it said the problem was merely low growth in Latin America and Asia, and sales should increase by 3% – 6% next year.
This denial seems to be Oracle Corporation (NASDAQ:ORCL)’s preferred method to downplay the negative. But usually when it makes these types of claims, it has trouble delivering. And that’s because its not doing a great job with its own cloud software.
Fun stuff
In fact, Oracle Corporation (NASDAQ:ORCL) ridiculed its newer rivals, sort of like Grandpa poking fun at the young one playing with his smart phone. Oracle insisted it’s going to eclipse Workday Inc (NYSE:WDAY) thanks to its established brand name. WorkDay responded by saying cloud technology is passing Oracle by and could consign the company to the technology dustbin.
Oracle Corporation (NASDAQ:ORCL) announced that it and salesforce.com, inc. (NYSE:CRM) would be teaming up to share data clouds, while Salesforce’s apps will now work with Oracle’s database. This is like the old man taking a step back and attempting to get with the times. The deal should be beneficial for Oracle because it now realizes hardware sales are weakening and it needs to adapt to compete.
Youngins
On the other hand, salesforce.com, inc. (NYSE:CRM) needs a big partner to grow into a more mainstream software maker. Workday Inc (NYSE:WDAY), Oracle Corporation (NASDAQ:ORCL)’s target du jour, needs a partner as well, and that means, it will need to play nice with one of the veteran hardware companies.
It also appears Workday Inc (NYSE:WDAY) may need a partner more than salesforce.com, inc. (NYSE:CRM), mainly because its key statistics are extremely poor for a tech company. Despite a cash flow increase of $493 million, it has a negative ROE which can be poison for investors. That also means its operating and profit margins are in the red. Being a smaller company, it could look to a larger player like International Business Machines Corp. (NYSE:IBM) for help.
The numbers
Despite its age, Oracle Corporation (NASDAQ:ORCL) still appears to be a better investment as it comes with a cheap forward P/E of 9.50, much lower than the young cloud players. And while its announcement of up to 6% growth may not be realistic, it does have plenty of wiggle room. And this is evidenced by its hefty 28% profit margins and 25% ROE.
The deal will no doubt help salesforce.com, inc. (NYSE:CRM). You see, Salesforce.com has the same problem as Workday Inc (NYSE:WDAY) in terms of negative profits and equity return. This would indicate that Salesforce.com is not currently a great company on its own, but because of this deal, there still could be a turnaround.
Foolish final thoughts
Ultimately, Oracle needs to deliver on its promises for it to still be a buy and companies like Salesforce.com and Workday Inc (NYSE:WDAY) need a company like Oracle to reach their potential. It would be like Grandpa making peace with his grandson and his gadgets.
John McKenna has no position in any stocks mentioned. The Motley Fool recommends Salesforce.com. The Motley Fool owns shares of Oracle..
The article The Old Man of Tech originally appeared on Fool.com.
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