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Oracle founder and chairman Larry Ellison
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The week started with strange news: Oracle apparently considered a bid for TikTok. Even touching is that hardly anyone on Wall Street talks about it.
This would be a big deal. Oracle (ticker: ORCL) is a 43-year-old business software company with a 76-year-old chairman in founder Larry Ellison. TikTok is a buzzy video app dominated by teens and tweens. Oracle has no history of serving a consumer-focused business and no experience in the advertising market where TikTok makes its money. And while Oracle is large – it has a market capitalization of $ 170 billion and 135,000 employees – TikTok, owned by China’s ByteDance, would cost upwards of $ 30 billion.
The Financial Times, which originally reported on a potential Oracle-TikTok deal, said a deal could also involve byteDance venture investors, such as General Atlantic and Sequoia Capital.
Oracle and TikTok declined to comment on the report.
Oracle already has about $ 35 billion in net debt. Of course, synergies lower the cost of a deal, but it’s hard to find one here. Most TikTok users are not in the market for enterprise database software. I have trouble finding coverage of analysts of the potential deal; Oracle has flummoxed everyone.
While Oracle has a long history of M&A, it has historically concentrated on strategic moves, rivaling enterprise software such as Siebel Systems, NetSuite and PeopleSoft. TikTok would be its largest purchase ever, probably three times more than the $ 10.5 billion it paid for PeopleSoft in 2005.
See also:Pioneers of Tech have been left behind. Their supplies are cheap – and complicated.
In one of Wall Street’s few missions last week, JMP Securities analyst Patrick Walravens noted that Ellison sometimes does the unexpected, including Oracle’s $ 7.5 billion acquisition of Sun Microsystems in 2009. Oracle outperforms IBM,
that seemed like a more logical fit. The Sun deal gave Oracle control over the Java software language, but it also placed the company in the hardware business for the first time. And that didn’t work out particularly well.
“Sun oracle oracle of the much larger trend of cloud computing,” Walravens wrote in his research note. “We believe this acquisition contributed to Oracle being very late in the game of cloud infrastructure and sharing this explosive brand with Amazon Web Services.,
Microsoft Azure, and Google Cloud. ”
As many have reported, ByteDance is under pressure from the Trump administration to sell TikTok’s U.S. operations to a U.S. buyer. Microsoft (MSFT) has agreed to hold talks with ByteDance. That combination makes much more sense than Oracle buying TikTok. Microsoft has experience in counter-consumer products (Xbox), it sells advertising (Bing), it already has a social network (LinkedIn), and it has a much stronger balance sheet ($ 77 billion in net cash).
Of course, Oracle could use a shot of adrenaline. In the May quarter of the company, its turnover was 6% down from the previous year. Microsoft’s top line, by comparison, was up 13% in the last four years. Oracle is projecting flat revenue for the current four-year period, and Wall Street sees revenue growing less than 1% in the current fiscal year – and that would be an improvement after two straight years. Oracle, meanwhile, has a broad customer base, making it vulnerable to the economic downturn. Like other legacy tech players, Oracle stock was down 4% in 2020, up from a 26% gain for the Nasdaq Composite.
Oracle has created a slow pressure in the cloud, and it has had some nice customer wins, for example by reporting Zoom Video Communications (ZM) in the middle of the pandemic. At Oracle’s recent call, Ellison said that Zoom chose Oracle because “we were faster – much faster – and we were much less expensive and we were safer.” TikTok has a three-year, $ 800 million deal to purchase cloud services from Google Cloud of Alphabet, according to The Information; if Oracle got TikTok, it could eventually move the service to its own cloud – one small synergy gain.
Ellison and CEO Safra Catz have been vocal supporters of President Trump, and he seems to be giving back the advantage when it comes to TikTok. This past week, Trump said, “Oracle is a great company, and I think the owner of it is a great man, a great person. I think Oracle would certainly be someone who could handle it.” Give Oracle a big edge in a bidding war with Microsoft It’s never wise to bet against Larry Ellison, but winning this battle may not be his best move.
For a few days this past week, it looked like Uber Technologies (UBER) and Lyft (LYFT) would halt operations in California. Following field battles, AB5, a law requiring companies to classify their drivers as employees, was finally enacted. But hours before the deadline, a state delayed an appeals court repealing the law.
Now, California voters will decide the future of AB5 through a November ballot measure called “Proposition 22,” which would exclude drivers for sharing economy from the law.
In the short term, the AB5 court delay was a good thing for Uber and Lyft. But the companies may have generated support for Prop 22 from weeks of local TV stories about drivers without jobs, and riders unable to get to work. In effect, Uber and Lyft won the battle, but that may make it harder for them to win the war.
Write to Eric J. Savitz by [email protected]
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