Oracle Founder and Chairman Larry Ellison
Phillip Faraone/Getty ImagesThe week started with odd news: Oracle was reportedly considering a bid for TikTok. Even odder is that barely anyone on Wall Street was talking about it.
This would be a big deal. Oracle (ticker: ORCL) is a 43-year-old enterprise software company with a 76-year-old chairman in founder Larry Ellison. TikTok is a buzzy video app dominated by teens and tweens. Oracle has no history of operating a consumer-facing business and no experience in the advertising market, where TikTok makes its money. And while Oracle is big—it has a $170 billion market cap and 135,000 employees—TikTok, owned by China’s ByteDance, would cost north of $30 billion.
The Financial Times, which originally reported on a potential Oracle-TikTok deal, said a transaction could also involve ByteDance venture investors, such as General Atlantic and Sequoia Capital.
Oracle and TikTok declined to comment on the report.
Oracle already has about $35 billion in net debt. Ordinarily, synergies lower the cost of a deal, but it’s hard to find any of those here. Most TikTok users aren’t in the market for enterprise database software. I struggled to find analyst coverage of the potential deal; Oracle has everyone flummoxed.
While Oracle has a long history of M&A, it has historically focused on strategic moves, snapping up enterprise software rivals like Siebel Systems, NetSuite, and PeopleSoft. TikTok would be its largest purchase ever, likely three times more than the $10.5 billion it paid for PeopleSoft in 2005.
See also:Tech’s Pioneers Have Been Left Behind. Their Stocks Are Cheap—and Complicated.
In one of the few Wall Street missives last week, JMP Securities analyst Patrick Walravens noted that Ellison occasionally does the unexpected, including Oracle’s 2009 acquisition of Sun Microsystems for $7.5 billion. Oracle outbid IBM, which seemed like a more logical fit. The Sun deal gave Oracle control of the Java software language, but it also put the company in the hardware business for the first time. And that didn’t work out particularly well.
“Sun ended up distracting Oracle from the much larger trend of cloud computing,” Walravens wrote in his research note. “Our view is that this acquisition contributed to Oracle being very late to the cloud infrastructure game and ceding 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 TikTok’s U.S. operations to an American buyer. Microsoft (MSFT) has acknowledged holding talks with ByteDance. That combination makes far more sense than Oracle buying TikTok. Microsoft has experience in teen-focused consumer products (Xbox), it sells advertising (Bing), it already owns a social network (LinkedIn), and it has a far stronger balance sheet ($77 billion in net cash).
Of course, Oracle could 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 up 13% in the latest quarter. Oracle is projecting flat revenues for the current quarter, and Wall Street sees revenue rising less than 1% in the current fiscal year—and that would be an improvement after two straight down years. Oracle, meanwhile, has a broad customer base, leaving it vulnerable to the economic downturn. Like other legacy tech players, Oracle stock has lagged in 2020, up 4%, versus a 26% gain for the Nasdaq Composite.
Oracle has made a belated push into the cloud, and it has had some nice customer wins, signing up Zoom Video Communications (ZM), for instance, in the middle of the pandemic. 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.” TikTok has a three-year, $800 million deal to buy cloud services from Alphabet’s Google Cloud, according to The Information; if Oracle got TikTok, it could eventually shift the service to its own cloud—one small synergy win.
Ellison and CEO Safra Catz have been vocal supporters of President Trump, and he seems to be returning the favor when it comes to TikTok. This past week, Trump said, “Oracle is a great company, and I think its owner is a tremendous guy, a tremendous person. I think that Oracle would be certainly somebody that could handle it.” White House support could give Oracle a big edge 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 this past week, it looked like Uber Technologies (UBER) and Lyft (LYFT) were going to suspend operations in California. Following court battles, AB5, a law requiring the ride-hailing firms to classify their drivers as employees, was finally set to be enforced. But hours before the deadline, a state appeals court delayed the law again.
Now, California voters will get to decide the future of AB5 through a November ballot measure called Proposition 22, which would exclude sharing-economy drivers from the law.
In the short run, the court’s AB5 delay was a good thing for Uber and Lyft. But the companies might have generated support for Prop 22 from weeks of local TV stories about out-of-work drivers, and riders unable to get to work. In effect, Uber and Lyft won the battle, but that might make it harder for them to win the war.
Write to Eric J. Savitz at eric.savitz@barrons.com
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