The week began with strange news: Oracle was reportedly considering bidding for Tiktok. Even strange that hardly anyone on Wall Street was talking about it.
This will be a big deal. Oracle (ticker: ORCL) is a 43-year-old enterprise software company with a 76-year chairman in founder Larry Ellison. TikTok is a buzzy video app dominated by teens and twins. Oracle has no history of operating a consumer-facing business and no experience in the advertising market, where Tiktok makes its money. While Oracle is large – it has a $ 170 billion market cap and 135,000 employees — Ticketock, owned by China’s Bytdans, will cost $ 30 billion.
Oracle and TikTok declined to comment on the report.
Oracle already has $ 35 billion in net debt. Typically, synergy reduces the cost of a deal, but it is difficult to find any of them here. Most TikTok users are not in the market for enterprise database software. I struggled to find analyst coverage of the potential deal; Oracle has everyone.
While Oracle has a long history of M&A, it has historically focused on strategic moves, snapping up enterprise software rivals such as Siebel Systems, NetSuite and PeopleSoft. TikTok would be its biggest purchase in 2005, more than tripled to $ 10.5 billion for PeopleSoft in 2005.
See it all:Tech’s Pioneers have left behind. Their stocks are cheap and complicated.
One of the few Wall Street missiles last week, JMP Securities analyst Patrick Wallervance, noted that Ellison does so unexpectedly at times, including Oracle’s $ 7.5 billion acquisition of Sun Microsystems in 2009. Oracle beats IBM,
Which seemed like a more logical fit. The Sun deal gave Oracle control of the Java software language, but it also placed the company in the hardware business for the first time. And it did not work particularly well.
“Sun distracted Oracle from the huge trend of cloud computing,” Valverns wrote in his research note. “We think that this acquisition led Oracle to be too late in the cloud infrastructure game and contributed to the amazing web services sharing of this explosive market.,
Microsoft Azure, and Google Cloud. ”
As widely reported, ByteDance is under pressure from the Trump administration to sell Tiktok’s American works to an American buyer. Microsoft (MSFT) has accepted negotiations with ByteDance. This combination makes more sense than buying TikTok from Oracle. Microsoft has experience in teen-centric consumer products (Xbox), sells advertising (Bing), already owns a social network (LinkedIn), and has a far stronger balance sheet ($ 77 billion in net cash) ) is.
Of course, Oracle can use a shot of adrenaline. In the company’s May quarter, its revenue was down 6% from the prior year. Microsoft’s top line, by comparison, was 13% in the latest quarter. Oracle is forecasting flat revenue for the current quarter, and Wall Street expects revenue to grow by less than 1% in the current fiscal year – and that will improve after two straight years. Meanwhile, Oracle has an extensive customer base, making it vulnerable to economic downturns. Like other legacy tech players, Oracle stock has lagged 4% in 2020, with a 26% gain for the Nasdaq Composite.
Oracle has made a belated push to the cloud, and has won some good customers, for example, the signing of Zoom Video Communications (ZM), in the midst of an epidemic. On Oracle’s recent earnings call, Ellison said that Zoom chose Oracle because “we were faster – much faster – and we were much less expensive and we were more secure.” Reportedly, TikTok has signed a three-year, $ 800 million deal to purchase cloud services from Alphabet’s Google Cloud; If Oracle got TicketLock, it could eventually move the service to its own cloud – a small synergy win.
Allison and CEO Suffra Ketz have been vocal supporters of President Trump, and he is returning the favor when he arrives in Tiktok. Later this week, Trump said, “Oracle is a great company, and I think its owner is a tremendous man, a tremendous person. I think Oracle would definitely be someone who could handle it. Is. “White House support could give Oracle a big edge in the bidding war with Microsoft. It is never prudent to stake bets against Larry Ellison, but winning this battle may not be his best move.”
For the past few days it seemed that it was going to suspend operations in California for Uber Technologies (UBER) and Lyft (LYFT). Following the court battles, AB 5, a ride-hailing firm, was determined to eventually implement the law required to classify its drivers as employees. But hours before the deadline, a state appeals court again delayed the law.
Now, California voters will get to decide the future of AB 22 through a November 22 ballot, called Proposition 22, which will force shared-economy drivers out of the law.
In a short period of time, the court’s AB5 delay was a good thing for Uber and Lyft. But companies may have generated support for Prop 22 from weeks of local TV stories about out-of-work drivers, and riders are unable to work. In fact, Uber and Lyft win the battle, but this can make it difficult for them to win the battle.
Write Eric J. at [email protected] Savitz