On November 11, Oracle (ORCL), Google (GOOG), and RedHat (RHT) were shortlisted to assist the Obama administration in fixing the U.S. health-insurance website. The website is being upgraded and bugs are being rectified to avoid technical glitches and crashes due to overload. Oracle Identity Manager, a government identity checking system designed by Oracle, will improve the functioning of this website. The market for identity management software is expected to rise from the current $5.13 billion to $10.39 billion by 2018. In 2013, Gartner named Oracle as the leader in identity management for the fifth consecutive year in its report "Magic Quadrant for Identity and Access Governance". Oracle plans to increase its market share in identity management software over the next five years and Obamacare is a good opportunity to do so.
This website will enable uninsured people in 36 U.S. states to shop for private health-insurance plans under the Patient Protection and Affordable Care Act of 2010, which will be effective from January 1, 2014. It is mandatory under this act for the estimated 32 million uninsured Americans to sign up for coverage, out of which 7 million people will get insurance coverage in 2014. The implementation of this act will create an opportunity worth $18 billion to $20 billion in the next three years for information technology service providers. This opportunity involves setting up online exchanges and call centres for U.S. insurance companies.
Cognizant Technology Solutions (CTSH) provides payment and call centre services to the online exchanges set up under Obamacare. The company posted its third quarter results for fiscal year 2013 on November 5, 2013. Its revenue rose 22% to $2.31 billion compared to its previous quarter due to contracts received from insurers for setting up online exchanges. Financial services and healthcare segment together contribute over 65% of Cognizant's revenue. The company raised its fiscal year 2013 forecast for profit and revenue due to discretionary spending in Europe and North America. European companies are cutting costs by outsourcing IT contracts to Cognizant as it has lower margins than its competitors. Cognizant has a low cost operating model with over 75% of its revenue coming from North America and 30% of its global operations cost coming from India.
Oracle targets ERP market
In 2010, [[SAP]] launched a cloud-based product, Business ByDesign, for mid-small sized businesses. It expected this product would generate annual revenue of around $1.35 billion starting in 2010 and reach 10,000 customers. At present, this product has only 785 active customers and generates annual revenue of $31.51 million. Business ByDesign customers include Lufthansa (OTCPK:DLAKF) and NSW Department of Trade and Investment. In October 2013, SAP stopped enhancement of Business ByDesign for the next 15 months, however its existing customers can use this product. SAP plans to redesign the product and market it a second time rather than closing the product.
The existing customers of SAP Business ByDesign product have faced issues like poor technical performance, limited industry specific add-on, and limited consulting partners who are required to deploy, customize, and integrate this product. In order to harness this opportunity, Oracle partnered with NetSuite (N) to sell cloud-based services to midsize companies. Under this partnership, NetSuite will integrate its ERP software with Oracle's human resources apps under its human capital management, or HCM. Oracle has started targeting SAP's Business ByDesign customers to switch to Oracle ERP Cloud. On October 29, Oracle offered SAP Business ByDesign customers free data migration and one year free subscription, if they deploy its ERP cloud software. Oracle provides continued support, maintenance, and industry specific applications for this product. However, customers have to sign a three year mandatory non-cancellation deal.
If I assume that over the next 15 months, Oracle succeeds in poaching a significant portion of SAP's Business ByDesign active customers that generate $31.51 million annual revenue, then this partnership with NetSuite will enable it to get additional revenue for the next 3 years. In addition to revenue, this deal will enable Oracle to increase its list of ERP customers.
Oracle enters BYOD space
On November 15, Oracle announced the acquisition of Bitzer Mobile, an enterprise mobility service provider that began operations in 2011 in the U.S with annual revenue of $200 million per year. Bitzer Mobile focuses on Bring Your Own Device or BYOD technology for generating revenue. BYOD is widely used by enterprises as it allows employees to use their personal mobile devices and laptops to access enterprise data and systems thus improving productivity and saving costs. The global BYOD & Enterprise mobility market is expected to grow from $67.21 billion in 2011 to $181.39 billion in 2017.
Security is highly important for BYOD technology and Bitzer Mobile provides features, which gives it an edge in this segment. In October 2013, Bitzer Mobile introduced security feature known as Bitzer Enterprise App Shield Technology or BEAST that addresses security & control issues for Android and iOS devices. Bitzer Mobile has also partnered with Colligo that enables employees to securely access SharePoint content from their mobile devices. SharePoint has over 150 million worldwide users and it enables enterprises to collaborate and take business decisions. This deal will enable Oracle to increase its footprint in BYOD technology space without spending on developing the technology.
Conclusion
Parameters | SAP | Oracle | Cognizant |
Forward P/E | 21.66 | 10.99 | 19.69 |
PEG Ratio (5 year) | 1.35 | 1.12 | 1.36 |
I think that Obamacare is a good opportunity for Oracle to improve its revenue. The company is also using its $15 billion cash to collaborate with players, acquire technology start-ups and upgrade its existing products in the technology space. From the above ratios, Oracle's stock still looks undervalued compared to its peers. I am bullish on ORCL.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (More...)
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