Oracle (ticker: ORCL) has seen increased adoption of cloud-based versions of its database and application software, while showing strong growth for Oracle Cloud, an emerging rival to Amazon Web Services and Microsoft Azure.
But there’s a new wrinkle in the Oracle story. Late Thursday, The Wall Street Journal reported that Oracle is holding talks for a $30 billion acquisition of electronic medical records company
Oracle shares slumped 6.4% on the news to $96.62, with investors likely concerned about how Oracle would finance the deal and how it would affect the company’s cloud push and stock buybacks.
It’s likely to be just a brief interruption for Oracle’s rally. The cloud growth is a multiyear opportunity.
Until the Cerner news, Oracle stock was basking in earnings glory. Earlier this month, Oracle said revenue for its fiscal second-quarter ended Nov. 30 was up 6% from the figure a year ago, well ahead of the company’s guidance.
Oracle CEO Safra Catz noted that combined cloud-based applications and database software revenue had risen 22% in the period, with growth likely accelerating in coming quarters. The stock rallied 15% on the news, to a record close.
Oracle has continued to support its stock with an aggressive repurchase program. The company bought back $7 billion worth in the latest quarter alone and has repurchased close to half of its shares over the past decade. The buybacks could be derailed by a deal for Cerner.
It’s worth noting that Oracle has been thinking about buying Cerner for a long time. Cerner’s name was on an internal list of nine potential Oracle M&A targets that surfaced in 2004. (Every other company on that list has now been acquired by Oracle,
or someone else.)
Neither Oracle nor Cerner responded to requests for comment, but Oracle founder and Chairman Larry Ellison talked up the company’s interest in healthcare on the recent earnings call.
A Cerner acquisition would be the largest in Oracle’s long history of deal-making, which includes $9.3 billion for NetSuite in 2016, $7.4 billion for Sun Microsystems in 2010, $8.5 billion for BEA Systems in 2008, $5.9 billion for Siebel Systems in 2006, and $10.3 billion for PeopleSoft in 2005.
At $30 billion, Cerner would be priced at about five times Wall Street’s 2022 sales estimate of $6.1 billion. Stifel analyst Brad Reback points out in a research note that Cerner has a gross margin in the low 80% range, but operating margins of just 20%, “leaving a significant amount of operational efficiency to capture.”
It’s yet another opportunity for Larry Ellison and Safra Catz.
Write to Eric J. Savitz at firstname.lastname@example.org