SAN FRANCISCO, CALIFORNIA – SEPTEMBER 16: Oracle CEO and Chief Technology Officer Larry Ellison delivers a keynote address during Oracle OpenWorld 2019 on September 16, 2019 in San Francisco, California. Oracle’s CEO and Chief Technology Officer Larry Ellison kicked off Oracle OpenWorld 2019 with a keynote address. The annual conference runs until September 19th.
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Amazon is the clear cloud market leader on at least two fronts.
Cloud infrastructure services generate more revenue than any other company.
In addition, it outperforms the competition for the underlying equipment required to provide these services.
The parent Google Alphabet and Microsoft are closely behind on spending, with Alphabet slightly higher as it seeks to outperform Microsoft as the second largest cloud provider by market share and revenue.
Then there are the stragglers. IBM and Oracle do not disclose revenue from their public clouds, but they do report total investments. This gives an idea of the amount of up-front investment companies are making to deliver these rapidly growing services.
These investments are meager compared to competitors. For the past four quarters, total investments from IBM and Oracle were less than a quarter from Microsoft. Amazon has spent seven times as much.
In Oracle’s latest earnings release on Wednesday, CEO Safra Catz told analysts that Oracle plans to increase quarterly investments by 131%, compared to a 5% increase in the previous quarter.
“We continue to attract a lot of new customers, including ISVs, and we have some very large users coming online soon that will require significant capacity,” she said.
For the past two quarters, Oracle has also encountered capacity issues in the cloud. Additional expenses could solve this problem. Oracle chairman Larry Ellison said in December the company was building cloud data centers as soon as possible.
Projecting $ 1 billion in investment is a big deal for Oracle. But it’s not that impressive in the context of other companies.
“They’re down $ 100 billion,” said Charles Fitzgerald, a former Microsoft general manager who wrote about investing on his Platformonomics blog. “Add an additional $ 1 billion in investment – that’s 1% of the gap they need to fill.” Amazon, Google, and Microsoft combined investments totaling more than $ 90 billion in 2020.
According to FactSet data, Amazon had higher investments than any other company in the S&P 500 last fiscal year. The company reported $ 35 billion in cash spending in 2020 and nearly $ 12 billion in property, plant and equipment under Finance leases were purchased; and an additional $ 2 billion in property, plant and equipment purchased as custom orders. (In part because the Amazon Web Services business has been so profitable, Amazon has accumulated $ 84 billion in cash, equivalents, and marketable securities for Oracle to work with. Oracle has approximately $ 36 billion.)
Of course, not all of the money went to AWS. The company said in its latest annual report that investments “primarily reflect investments in additional capacity to support our fulfillment operations and to support continued business growth in technology infrastructure (most of which will support AWS).” And Amazon’s acceleration in investment coincides with a surge in sales growth in Amazon’s online stores that consumers flocked to during the coronavirus pandemic.
Even if Amazon, Google, and Microsoft leave Amazon’s retail stores aside, they run popular consumer web applications – think Google’s YouTube and Microsoft’s Xbox Live – and investments make those services possible.
IBM and Oracle don’t have features that are used as often to warrant additional investment, even though IBM owns the Weather Channel mobile app.
If a company is not investing money in operating, capital expenditures, or making acquisitions, it can always return cash to investors. IBM and Oracle have been doing this for years, and on Wednesday Oracle doubled in size and announced a 33% increase in quarterly dividends.
“While we recommend return on investment through buybacks and a higher dividend to shareholders, we believe F3Q: 2021 results are unlikely to change Oracle’s current view. The stock is cheap, but the company is growth-driven due to multiple headwinds Brian Schwartz and Chad Schoening of Oppenheimer wrote in a statement to customers on Thursday that the company has the equivalent of a hold rating for Oracle shares.
SEE: Here’s what these investors see in Oracle’s earnings
