Oracle Bull's Rebuttal
David Forrest ([email protected])

Yikes! After reading Jim's bearish argument about Oracle, I was wondering if he and I were talking about the same company. Let's take a look at some of Jim's comments.

"What determines a company's real value to investors is its ability to deliver rapid and consistent earnings growth in the foreseeable future.... As a result, [Oracle] has been rewarded with a valuation worthy of consumer giants like Coke <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:KO)") else Response.Write("(NYSE:KO)") end if %> and Gillette <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: G)") else Response.Write("(NYSE: G)") end if %>, trading at a price-to-earnings ratio of better than 35."

Well, first of all, comparing Oracle to companies like Coke and Gillette right after he says "real value to investors is [the] ability to deliver rapid and consistent earnings growth" is almost comical. Gillette's 5-year growth rate in EPS is a blistering 11.98% and Coca-Cola's is a blazing 18%. (As a side note, how long do you think Coke is going to be able to generate 18% EPS growth while only generating less than 9% sales growth? Financial management efficiency only goes so far!)

Oracle, on the other hand, has recorded a 5-year EPS growth record of 66% per year and will normalize (once short-term problems are taken care of) around 30%. Even Microsoft is only averaging about 35% per year! Jim also fails to understand how important data storage and manipulation will be in the future. Oracle is the leader.

The bottom line is that Oracle is experiencing a very short-term problem in earnings growth as a result of problems in Asia and a slower transition from Oracle7 to Oracle8. Again, every techie I talk to says that Oracle is the best in the database business. I'm reasonably sure that in 5 years, we'll look back at this time and think of it as a mere blip on the screen.

Next: The Bear Responds