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Oracle Looking For A Slice Of Salesforce's CRM Market
Mar. 20, 2018 9:02 AM ET|22 comments| Includes: CRM, FUSZ, ORCL
Michael Sheikh
Long only, research analyst, biotech, small-cap
Galtectin Therapy
(414 followers)
Summary
Exponential cloud sales growth leading sales pipeline.
NetSuite acquisition positions growth in small to medium business.
nFusz' s notifiCRM April product launch could galvanize sales.
Acquisitions in "applications" key to growth.
Oracle (NYSE:ORCL) is making a push in Software as a Service ("SaaS"), competing against entrenched stalwart’s like Salesforce.com (NYSE:CRM) and Amazon (NASDAQ:AMZN). Since 2016, ORCL has been making steady gains in the cloud computing market. As a percentage of sales, it has increased from 8 % to 16%. Investors are interested in what killer apps or acquisitions are going to drive future sales. Enterprise Resources Planning (ERP) is becoming the new buzzword as ORCL tries to capitalize on its strengths to improve customer resource management. More businesses want something that is scalable but they also want solutions. EPR offers a great platform but now businesses want the solutions in the form of an “app.” These SaaS solutions are what is driving the growth at ORCL. We are going to break down a couple of ideas.
Room to Grow
Oracle is well positioned to grow their cloud business because of their existing customer base. They have many clients in the sweet spot transitioning to cloud services and modernizing their enterprise solutions because it’s so much cheaper than maintaining an IT department that has to constantly assess all the cyber threats out there. ORCL is in the middle of that shift right now and their marketing strategy is very simple. All they have to do is sell to their existing customer base. That means they need to have the product offerings their customers want when they do the upgrades. Investors should look for an increase in cloud adoption along with an increase in contract size, which is the sign that the transition is taking place. Therefore the key for ORCL to succeed in this migration is to have the right product offerings.
Top SaaS Companies
Salesforce.com is the largest company that kick started, and coined the phrase, customer relationship management, or CRM. It has since expanded into platform development, marketing, analytics and social networking.
Microsoft (NASDAQ:MSFT) is known for their operating system but in the push to cloud computing they had to reinvent themselves and have moved its desktop productivity suite Office to the cloud and now Office 365 outsells the packaged, client version. They beefed up the offering to offer Dynamics CRM, SharePoint collaboration and even SQL Server databases on demand.
Adobe Creative Cloud (NASDAQ:ADBE) This adaptation was hard to see coming but Adobe specializes in desktop creativity software and has now pivoted to make Photoshop and other audio and video editing tools available via an annual subscription. Now they are a very large player in this niche offering graphic design, video editing, Web development, and photography editing through their Creative Suite.
Box (NYSE:BOX) started as a cloud storage firm but has expanded to offer file collaboration and editing services to files stored on its servers.
Amazon Web Services SaaS (AMZN) offers a platform for building your own SaaS apps as well as reselling a number of SaaS products from third-party vendors, many of whom are on this list. The have a growing list of developers continually refining their applications.
Google G Suite (NASDAQ:GOOG) is a packaged collection of existing Google offerings, like Gmail, storage and calendar, custom email, with 24/7 support in return for a subscription price over the free basic services offered.
Slack is one of the most popular enterprise collaboration platforms even with Microsoft introducing a competitive product. It offers time messaging, archiving, and search for modern teams.
Zendesk (NYSE:ZEN) offers cloud-based customer service, with features like support tracking, purchase tracking, billing, shipping, and other customer data.
ADP (NASDAQ:ADP) ADP is one of the world’s best-known payroll management brands and has migrated to the cloud to offer Human Capital Management, involving HR, payroll, and employee benefits.
Oracle is another software giant that migrated to SaaS. It has moved all of its line of business on-premises apps to the cloud, including ERP, CRM, SCM, HR and payroll. NetSuite was acquired in 2016, which sells to small and medium business not normally served by Oracle and Salesforce.
NetSuite Acquisition Redefines Oracle
In July of 2016 ORCL announced the definitive agreement to acquire NetSuite a company focused entirely on cloud services in the midmarket and small enterprise segment. At the time the acquisition was accretive but the real question on investor’s minds is what they were going to do with it. It would increase ORCL’s total addressable market adding small and medium sized companies to the customer base. Almost 2 years later this is the division accounting for the lion’s share of ORCL’s growth. ORCL tracks different categories of sales. In the last Quarter ended November 30, 2017, $1.519 billion or 15.7% of total sales came from the cloud revenue and represented 44.3% growth year over year. New software licenses and product support represented 81.3% of total sales but grew only 9% year over year. Hardware and services revenue represented 18.6% of total sales and its virtually flat year over year. The point of this analysis is that without NetSuite and the growing cloud business ORCL was a mature company with stagnant growth. Cloud is ORCL’s future and they need to continue growing their offering and the fastest way is through continued acquisitions of companies in the CRM space that have applications that their existing customer’s needs. Finding those needs and catering to them is a matter of survival.
Product Offering - Killer Application – notifiCRM by nFusz, Inc.
Many businesses crave a customer resource management suite of products. With the right solutions, ORCL can capture the sale instead of losing the customer to Salesforce.com. Oracle's new partnership with nFusz, Inc. (OTCQB:FUSZ) to incorporates nFusz' notifiCRM product into Netsuite, gives NetSuite a big advantage over its competitors. NotifiCRM boasts the first interactive video-based CRM, that automates the selling process through interactive videos. Simply put, the response rate to an interactive video is much higher than ordinary YouTube style videos, which leads to more effective customer engagement and ultimately to more sales. Most people have seen the person that walks out onto your screen in the form of an advertisement. Now imagine those 'walkouts' being interacting. But that’s just a part of what notifiCRM does because there is a back end to manage and track the interactions. Customers and prospects can actually respond to a sales call to action right in and through the video, which can be viewed on the customer's device whether it is a mobile, tablet, desktop, or laptop. NotifiCRM almost eliminates the sales skills entirely from the selling process. The product launch is expected to be in April and will be offered to 40,000 end users with millions of endpoints. There is a possibility of its announcement at the NetSuite Conference held in Las Vegas from 23 – 26 April.
Strategic Acquisitions
Oracle has been very quiet with regards to strategic acquisitions especially in the category of Servers, Storage and Networking, with the last acquisition in 2014. Company-wide they only did 4 acquisitions in 2017 and we think that is going to change. In February 2018, they bought Zenedge, which provides Oracle's Cloud Infrastructure with an integrated next-gen Web Application Firewall (WAF) and distributed Denial of Service (DDoS) capability. Zenedge has over 800,000 web properties and networks globally. It seems the core reason for this acquisition was the customer base. When it comes to cyber security, the best product for enterprise, cloud computing, and mobile is Validian Protect. The technology secures the storage, transfer and usage of data seamlessly by encompassing it in a realm akin to a virtual closed system within the internet. Validian Protect protects the data regardless of whether the environment is compromised with hacking, improper access, malware, viruses, and/or DDosS. Since Validian (OTCPK:VLDI) has so few customers and such robust technology it’s not hard to see the fit.
nFusz Possible Acquisition Target
nFusz and the notifiCRM product will soon be fully integrated into Netsuite and Marketo. Under existing agreements, FUSZ receives 80 – 90% of the revenue. If this takes off after the launch in April, ORCL might consider an outright purchase of the company to protect themselves from any potential disruption in the market. As a takeover target, FUSZ is very attractive because most of its debt has been paid down and the balance sheet is clean. There is very strong insider sentiment because not one insider has ever sold a share. Instead the insiders are taking common shares over cash compensation, which shows their commitment to the underlying business. The CEO has laid the groundwork for an uplisting to NASDAQ or NYSE, which necessitated cleaning up the balance sheet, getting an independent board, raising capital, and generating significant sales volume. There are some marquee accounts that represent amazing opportunities like American Idol, Disney, Ubid, Accessory Geeks and Oru. Top technology influencer Rich Bohn will soon release an exhaustive review of the product, but in his preliminary review shared via social media, he stated that notifiCRM is a “game changer.” Will ORCL let this slip through their hands or snatch it up once it gains traction? Either way it looks this product has some incredible potential and ORCL with benefit whether it buys them or not.
Investment Summary
Oracle has a real opportunity to ramp up sales by taking advantage of this upgrade cycle to cloud based services in its ERP division. Sales growth in the cloud is going to come regardless of what sort of add on products they have but this is a generational move that if orchestrated properly could lead to dominance in the cloud. That means no other player in this category has better shot at taking on market leader CRM. ORCL has doubled its growth in Cloud based sales in the past two years and with more acquisitions could double again over the next 2 years. The right acquisitions that cater to the small and medium business in CRM are key facets of their plan. Exponential growth in cloud, the fastest subset of their business, can mean only one thing, a higher stock price.
Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in ORCL over the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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