Oracle Or SAP?

by Trefis Team
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Oracle’s stock (NYSE: ORCL) is up by more than 40% since December 2016. In comparison, close rival SAP’s stock (NYSE: SAP) has grown at a higher rate of over 60% during the same period. This, despite the fact that Oracle has a larger revenue base and a more profitable business than SAP. We believe that the stock price movement makes sense and our dashboard SAP vs. Oracle: Does The Stock Price Movement Make Sense? has the underlying numbers.

Sure, Oracle’s net income margins have remained largely above SAP’s, but the key element here is the revenue growth. Despite Oracle’s revenue base being higher than SAP’s, SAP’s revenues have increased by 26% from $24.4 billion in 2016 to $30.6 billion in 2019. This is much higher than the 4% increase in Oracle’s revenues during the same period from $37.7 billion in FY2017 to $39.1 billion in FY2020. While SAP saw a dip in Net Income margin in 2019, that was primarily due to a one-time restructuring expense of around $1.2 billion and we expect SAP’s margin to recover in 2020.

Note: We have compared the fundamentals of both companies for the last 4 years (FY2017-2020 for Oracle as it follows May ending convention while 2016-2019 for SAP’s as it follows calendar year)

How Do The Core Businesses For Oracle And SAP Compare?

Let’s look at the core business prospects a bit more closely. Oracle provides products and services that address enterprise information technology (IT) environments. The products and services include applications and infrastructure offerings that are delivered worldwide through a variety of flexible and interoperable IT deployment models. These models include on-premise deployments, cloud-based deployments, and hybrid deployments (an approach that combines both on-premise and cloud-based deployment). Oracle’s geographical revenue mix is strong with 55% coming from the Americas, 29% from EMEA countries (Europe, Middle East, and Africa), and the rest from Asia-Pacific.

SAP is a multinational software corporation that develops and delivers software, services, and support that address business needs. The company offers a wide range of enterprise resource planning (ERP) applications which includes customer relationship management (CRM), human capital management, financial management, product life-cycle management, and supply chain management (SCM). The company also has a foray in business intelligence with SAP BusinessObjects. SAP’s geographical revenue mix is also strong with 44% coming from EMEA countries (Europe, Middle East, and Africa), 40% from the Americas, and rest from Asia-Pacific.

To recap, we believe that SAP is likely to outperform Oracle, in the medium-to-long-run primarily due to better revenue mix and expected Net Income margin improvement post restructuring.

While SAP looks like a better investment option compared to Oracle in the medium run, which S&P 500 component stocks have the best chance of outperforming the benchmark index? Our 5 In the S&P 500 That’ll Beat The Index: TWTR, ISRG, NFLX, NOW, V look promising.

 

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