Oracle Corporation (ORCL): The Significant Drop of This Tech Giant Creates a Buying Opportunity

salesforce.com, inc. (NYSE:CRM) is also quite active in cloud service acquisition. It has recently acquired ExactTarget Inc (NYSE:ET), the cloud-based digital marketing company, for around $2.5 billion in cash. Salesforce paid a high premium, equaling 52% to the company’s pre-offer trading price. According to Salesforce, the acquisition will create a marketing platform across different channels including email, social, mobile and the web. As ExactTarget Inc (NYSE:ET) has not generated any profits for the past three years, the acquisition will reduce Salesforce’s full-year 2014 non-GAAP earnings per share to a range of $0.31 to $0.33. The acquisition price seems high at 7.4 times its revenue, higher than the current price-to-sales valuation of Salesforce.

Valuation

At around $37 per share, the market values Salesforce at more than 6.8 times its sales, but as high as 300 times its trailing EBITDA (earnings before interest, taxes, depreciation and amortization); this makes its valuation the highest of the three companies. IBM trades at around $197 per share, with a total market cap of $218.8 billion. The market values IBM at 9.3 times its trailing EBITDA and 2.17 times its sales. Oracle has the lowest EBITDA multiple among the three. It trades at around $30 per share, with a total market cap of more than $142.70 billion. The market values Oracle at only 7.67 times its trailing EBITDA and 3.9 times its sales.

My Foolish take

I like both IBM and Oracle Corporation (NASDAQ:ORCL); they have global leading positions, have moved aggressively into cloud service offerings and feature reasonable valuations. Oracle, with its recent drop in its share price, represents a good investment opportunity for long-term shareholders. Salesforce, on the other hand, seems quite richly valued at its current trading price.

Anh HOANG has no position in any stocks mentioned. The Motley Fool recommends Salesforce.com. The Motley Fool owns shares of International Business Machines (NYSE:IBM) and Oracle. Anh is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article The Significant Drop of This Tech Giant Creates a Buying Opportunity originally appeared on Fool.com and is written by Anh HOANG.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.