While increasing mobile Internet use is a very public technology shift, the other big change is the corporate swing toward cloud computing.
It’s taken the wind out of the sails at Oracle Corporation (NASDAQ:ORCL) as upstarts like salesforce.com, inc. (NYSE:CRM) and Workday Inc (NYSE:WDAY) have been more nimble. Don’t count the giant out, however.
A Rough Quarter
Oracle Corporation (NASDAQ:ORCL)’s results missed Wall Street estimates for the second quarter in a row, prompting the shares to sell off sharply and leaving them down for the year despite the broader market’s advance. CEO Larry Ellison noted that weak or weakening economies around the world were a major reason for the shortfall, but Wall Street appears more concerned that Oracle Corporation (NASDAQ:ORCL) is a lumbering giant moving too slowly into new markets. That’s not an unreasonable assessment.
Oracle Corporation (NASDAQ:ORCL)’s foundation is on back office hardware and software pairings in the business world. That’s been a great business, but the model is decidedly old today as more and more companies get comfortable with the software as a service (SAAS) model. Essentially, Oracle Corporation (NASDAQ:ORCL) is selling companies their own systems, often at great expense. SAAS leverages the connectivity of the Internet to allow customers to “rent” their computer systems on a monthly basis.
The worst part is that cloud computing makes the rental fee pretty low so long as you don’t require too much individualization. It’s an offer that is getting increasingly difficult to compete with and helps explain at least a portion of both the lackluster recent performance and the company’s less than impressive outlook.
Doing it in the Cloud
salesforce.com, inc. (NYSE:CRM) and Workday Inc (NYSE:WDAY) are two of the upstarts that have been gaining ground with their cloud offerings.
salesforce.com, inc. (NYSE:CRM) started out selling customer relationship management tools over the Internet. Today, it has four offerings, Sales Cloud, Service Cloud, Marketing Cloud, and the salesforce.com, inc. (NYSE:CRM) Platform. Effectively, these software as a service offerings can replace key computer systems that would historically have been provided by a company like Oracle Corporation (NASDAQ:ORCL).
Sales at salesforce.com, inc. (NYSE:CRM) have exploded over the past decade, going from around $100 million to over $3 billion last year. Growth spending, however, has left earnings in negative territory over the last two years. While that’s not an unheard of trend, the company had been making money for years leading up to the red ink. Moreover, it plans to spend around $2.5 billion in cash to buy ExactTarget, its largest acquisition yet.
While continued expansion via acquisition is important, it increases the risks at a money losing company trading near all time highs. Aggressive growth investors should take a look, but more conservative types should probably sit on the sidelines.
Workday Inc (NYSE:WDAY) is a money-losing cloud company. It is a relatively new public company, so there is little information available. Revenues in the recently ended fiscal year were about $275 million. While some might see this and project out growth like that seen at Salesforce, that’s a high-risk bet for an upstart.
Workday Inc (NYSE:WDAY) offers such services as payroll, financial management, time tracking, procurement, and employee expense management. These are vital back office functions that take up vast amounts of computer time, so a shift into the cloud makes sense. The company has notable potential, particularly in the small- and mid-sized business arena, but there is no guarantee of success.