The week started with some weird news: Oracle was apparently considering an offer for TikTok. What’s even stranger is that hardly anyone on Wall Street was talking about it.
It would be a big problem. Oracle (symbol: ORCL) is a 43-year-old enterprise software company with a 76-year-old president in founder Larry Ellison. TikTok is a buzzing video app dominated by teens and tweens. Oracle has no history of operating a consumer-oriented business and no experience in the advertising market, where TikTok makes its money. And while Oracle is big – it has a market cap of $ 170 billion and 135,000 employees – TikTok, owned by Chinese ByteDance, is said to cost north of $ 30 billion.
Oracle and TikTok declined to comment on the report. Oracle already has approximately $ 35 billion in net debt. Usually synergies reduce the cost of a deal, but it’s hard to find them here. Most TikTok users are not in the business database software market. I struggled to find analyst coverage of the potential deal; Oracle has everyone baffled.
Although Oracle has a long history of mergers and acquisitions, it has historically focused on strategic moves, attracting enterprise software competitors such as Siebel Systems, NetSuite, and PeopleSoft. TikTok would be his biggest purchase ever, probably three times more than the $ 10.5 billion he paid for PeopleSoft in 2005.
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In one of the few missives from Wall Street last week, JMP Securities analyst Patrick Walravens noted that Ellison sometimes does the unexpected, including Oracle’s 2009 acquisition of Sun Microsystems for $ 7.5 billion. of dollars. Oracle outbid IBM,
which seemed like a more logical adjustment. The Sun deal gave Oracle control over the Java software language, but it also put the company in the hardware business for the first time. And it didn’t work particularly well.
“Sun ended up distracting Oracle from the much larger cloud computing trend,” Walravens wrote in his research note. “We believe this acquisition has helped Oracle lag far behind in the cloud infrastructure game and sell share of this explosive market to Amazon Web Services.,
Microsoft Azure and Google Cloud. “
As has been widely reported, ByteDance is under pressure from the Trump administration to sell the US operations of TikTok to a US buyer. Microsoft (MSFT) admitted to having spoken with ByteDance. This combination makes a lot more sense than buying Oracle TikTok. Microsoft has experience in consumer products for teenagers (Xbox), it sells advertising (Bing), it already has a social network (LinkedIn) and its balance sheet is much stronger ($ 77 billion in cash net).
Of course, Oracle could use a dose of adrenaline. In the company’s May quarter, revenue was down 6% from a year earlier. Microsoft’s revenue, by comparison, grew 13% in the last quarter. Oracle projects stable revenue for the current quarter, and Wall Street sees revenue rise by less than 1% in the current fiscal year – and that would be an improvement after two straight years of decline. Oracle, meanwhile, has a large customer base, which makes it vulnerable to the economic downturn. Like other former technology players, Oracle shares fell behind in 2020, up 4%, compared to 26% for the Nasdaq Composite.
Oracle made a late push into the cloud and scored some big customer wins, signing Zoom Video Communications (ZM), for example, in the midst of the pandemic. During the recent Oracle earnings call, Ellison said that Zoom chose Oracle because “we were faster – a lot faster – and we were a lot cheaper and we were safer.” TikTok has reached a three-year, $ 800 million deal to purchase cloud services from Alphabet’s Google Cloud, according to The Information; if Oracle got TikTok, it could potentially move the service to its own cloud – a small winning synergy.
Ellison and CEO Safra Catz have been staunch supporters of President Trump, and he seems to be returning the favor when it comes to TikTok. Last week Trump said, “Oracle is a great company, and I think its owner is a great guy, a great person. I think Oracle would definitely be someone who could handle it. Support from the White House could give Oracle a huge advantage in a bidding war with Microsoft. It’s never wise to bet against Larry Ellison, but winning this battle might not be his best move.
For a few days last week, it looked like Uber Technologies (UBER) and Lyft (LYFT) were going to suspend their operations in California. Following legal battles, AB5, a law requiring transport companies to classify their drivers as employees, was finally to be enforced. But hours before the deadline, a state appeals court again delayed the law.
Now California voters will be able to decide AB5’s future thanks to a November ballot measure called Proposition 22, which would exclude the drivers of the sharing economy from the law.
In the short term, the AB5 delay of the short was a good thing for Uber and Lyft. But companies may have generated support for Prop 22 from weeks of local TV stories about unemployed drivers and drivers unable to get to work. Indeed, Uber and Lyft won the battle, but it might make it harder for them to win the war.
Write to Eric J. Savitz à [email protected]