Eric J Savitz
As we outlined in a Barron’s cover story in February 2021, Oracle (ticker: ORCL) is using the cloud to drive new growth in the company’s application and database software businesses, while also moving to take on the three giants in the public cloud—Amazon.com’s (AMZN) Amazon Web Services, or AWS, Microsoft’s (MSFT) Azure, and Alphabet’s (GOOGL) Google Cloud. Oracle is getting traction on all fronts, and it’s driving growth rates the company hasn’t seen in more than a decade.
For a while, our bullish call paid off handsomely. By mid-December of last year, the stock had rallied 70%, briefly eclipsing $100 a share. But Oracle shares have since round-tripped back to the low 60s. The stock hasn’t been immune to the market selloff. But there is a more specific issue, too. Late last year, Oracle announced its largest deal ever, buying the electronic health-records company Cerner for $28.3 billion in cash. Seeing risks in the large outlay and the integration process, Oracle investors fled. And the stock is now a bigger bargain than it was in early 2021.
Ahead of the company’s CloudWorld customer event in Las Vegas this past week, Catz agreed to a rare interview with Barron’s about the Cerner deal, the push into the cloud, the economy, and more. Here are edited excerpts from the conversation.
On why Oracle bought Cerner. One of the things the pandemic showed us is that the healthcare system was so not ready for prime time. People say we have the best hospitals in the world, the best doctors, the best nurses, and the best medicines, and all of that is true. What we don’t have is the best data to hand over to the doctors and nurses and hospitals. The world of shopping has better data for understanding people than the world of healthcare.
It was time to bring healthcare information into the 21st century. There were silos, data all over the place. We saw Cerner as a good base. As we bring them to the Oracle cloud for performance, security, and cost, we can start upgrading the systems to something modern. Oracle is always trying to solve really hard data problems. We’ve already done so many others. We’re into national security, we’re into saving energy in utilities, we’re into optimizing supply chains. You know what we weren’t really into, what we weren’t doing? We weren’t saving lives.
On the stock market’s reaction to the deal. They hated it. Some of the reports said, “Oh, it’s an on-premise thing,” and of course, we are moving it all to the cloud. Cerner was originally going to move to AWS, so now they’re moving to the Oracle cloud, which is hundreds and hundreds of millions of dollars, ultimately billions, not going to AWS. They didn’t really have much respect for Cerner and didn’t understand what we were going to do. But remember what it cost—about $30 billion. Our free cash flow is in the teens every year—so we can pay for it in free cash flow in two years, and then we own it. When we bought Sun in 2009, our stock dropped. But we paid for it in a year and a half, and it made Exadata [Oracle’s hardware platform] possible, and it made the Oracle cloud possible.
On Oracle’s competitive position in the cloud. OCI Gen 2 is finally ready for prime time. It’s better, cheaper, and more secure than the others. Without it, we wouldn’t have considered buying Cerner. And when we say “Gen 2,” it really is different. We have some of the original folks who worked on the first-generation clouds from Azure and AWS, and we said to them, if you knew then what you know now, what would you build? And we built something architecturally totally different.
Customers who compare us with the other clouds are often stunned. Why do all these auto companies—Toyota, Nissan, Mazda—why are they doing all their high-performance work in the Oracle cloud? Is it our charming bedside manner? Probably not. Is it because it is faster, cheaper, and more secure? Ding, ding, ding!
On the economy and the potential for growth. As we get bigger, our growth rate has actually accelerated. We grew 8% organically in the August quarter. Going forward, we will be growing double digits organically, and Cerner should be in double digits also.
We aren’t seeing a slowdown, but I remain vigilant and careful about expenses. In July, ServiceNow [NOW] and some others talked about a slowdown. We had an August quarter end, so if there was a slowdown, you’d think I would have seen it. And yet we have so much momentum. But let me be clear. Exchange rates are stunning in countries where we do a lot of business—the U.K., Japan, the euro zone. Exchange rates reduced earnings by eight cents a share in the latest quarter. But apples to apples, business was killer. And we stopped doing business in Russia in February. We walked away from almost $500 million in revenue.
On the company’s confidence. We’ve bought back so much stock that Larry Ellison owns more than 42% of the company. We’re owners, not renters. We’ve been told many times that we’re lunatics. We embrace it. We’ve got a plan. Larry goes to work every day—a 78-year-old billionaire who owns an island in paradise—completely committed to this mission. And me too—completely committed. I see a lot of others who talk more—and then after the talking’s done they are not such good players. I want our results to speak for themselves.