What Oracle actually does
Oracle was co-founded in 1977 in Santa Clara, California, by Bob Miner, Ed Oates and Larry Ellison. It is best known for the Oracle Database, software that large organisations use to store and manage critical data. Today the company is headquartered in Austin, Texas.
It sells three broad groups of products: database software, enterprise applications such as finance, human resources and supply-chain tools, and cloud infrastructure (Oracle Cloud), which lets customers run workloads on its data centres.
How the business makes money
Oracle earns recurring revenue from software licences, support contracts and cloud subscriptions. Customers who depend on its databases and business applications rarely leave, because moving critical systems is expensive and risky.
Cloud infrastructure has become the big growth story, especially from companies that need large amounts of computing power for artificial intelligence.
The dividend story
Oracle pays a quarterly dividend. The yield is modest, and the company has raised the payout over time. It moved its stock listing from the Nasdaq to the New York Stock Exchange in 2013.
An important point for income investors is how the company funds its expansion. Building data centres for AI is very costly, and spending that is financed partly with debt can leave less room to raise dividends quickly.
What to keep an eye on
- Debt levels. Big investments have increased borrowing.
- Customer concentration. A few very large cloud contracts account for a lot of expected growth.
- Competition. Amazon, Microsoft and Google dominate the cloud market.
- Execution. It needs to deliver data-centre capacity on schedule.
Quick take
Oracle is a well-established software company with a modest dividend and a major bet on cloud infrastructure. Look closely at debt and cash flow when judging the safety of future increases.