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How has Oracle's share price reacted to the company’s TikTok bid?

Oracle’s [ORCL] share price has had a fairly turbulent year so far, with plenty of ups and downs. The stock had its worst day of trading on 12 March, when it fell to $39.80 — 25.23% lower than the $53.23 it at which it started the year.  

However, Oracle’s share price has recovered and, since 18 June, has been consistently trading above the value at which it opened the year. In fact, Oracle’s share price went on to reach a 52-week intraday high of $59.32 on 2 September before closing at $59.03, marking a 10.89% rise year-to-date.

This value puts Oracle’s share price only a fraction lower than its all-time high of $60.50, which it reached on 10 July last year before closing slightly lower at $60.15.

The recent surge in Oracle’s share price is partly based on the news that the company has thrown its hat into the ring to take over the US, Canadian, Australian and New Zealand operations of social media phenomenon TikTok.

The announcement pushed Oracle’s share price up 2.2% when the news broke on 17 August, and it has continued to grow ever since.

 

 

An unlikely acquisition?

As tensions continue to build between the US and China, US President Donald Trump issued an executive order on 6 August that would ban TikTok in the region if it weren’t sold by its parent company, ByteDance, by 15 September.

Several companies have announced their interest in acquiring the social media platform, including long-term rival Microsoft [MSFT], with Oracle being one of the most recent.

The company has close ties to the White House through Larry Ellison, Oracle’s chief technology officer and largest shareholder, who threw a campaign fundraiser for Trump earlier this year. Venture capital firms General Atlantic and Sequoia Capital are backing the deal but, to a lot of analysts, the acquisition just doesn’t fit.

“I just don’t think this deal makes sense,” Brent Thill, an analyst at Jefferies, told the Financial Times. The publication reported that Thill said Oracle’s lack of consumer experience would make an acquisition a gift to TikToks’ rivals. “Their DNA is enterprise. The only one who hopes Oracle gets this is Facebook [FB],” he said.

As an industry leader in enterprise software, Oracle’s key business has always been selling the databases and business applications that help to keep larger organisations running. The company has, however, lost significantly to tech companies such as Microsoft, Google [GOOGL] and Amazon [AMZN], as corporate computing moves to cloud technology.

According to Oracle’s fiscal fourth-quarter report released in June, revenue was down 6% year-over-year to $10.4bn. However, Safra Catz, Oracle’s CEO, did note strong performances in both its cloud infrastructure and cloud applications businesses.

Given Oracle’s very limited experience with consumer platforms, why is it interested in buying TikTok?

According to the Financial Times, Nucleus Research analyst Daniel Elman believes that, by owning a popular social media app, Oracle would gain from bringing a large captive audience user base for its cloud infrastructure. The company could also use data collected from the platform to “supplement its marketing services,” offering its corporate customers valuable information about millions of consumers.

The deal would also likely fortify Oracle’s (and Ellison’s) ties with Trump and his administration. “Politically, they are one of the better-connected [companies] in Washington right now – they are one of the few that could pull something like this off,” Elman said.

“Politically, they are one of the better-connected [companies] in Washington right now – they are one of the few that could pull something like this off” - Nucleus Research analyst Daniel Elman

 

What’s the outlook for Oracle’s share price?

Somewhat contrary to Zacks Equity Research’s Sell rating, the consensus among 29 analysts polled by CNN Money is to Hold the stock. This comes from a majority of 20, with six analysts giving Oracle’s share price as it stands a Buy rating. Two analysts rate Oracle’s share price as Outperform, while one other has given it an Underperform rating.

Among 23 analysts offering 12-month forecasts for Oracle’s share price, CNN Money reports a median target of $56, with a high estimate of $70 and a low of $44. The median estimate represents a 1.92% decrease on its 3 September closing price.

 

Market Cap$175.222bn
PE ratio (TTM)18.54
EPS (TTM)3.08
Quarterly Revenue Growth (YoY)-6.3%

Oracle share price vitals, Yahoo Finance, 4 September 2020

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