- CRM
- ORCL
- SPY
Salesforce, Inc. (NYSE:CRM) closed at $242.45 on October 19. The stock returned 30.2% over the last 6 months, compared with an 11.6% return for the Insider Monkey Billionaire Index and 8.7% for the State Street SPDR S&P 500 ETF Trust.
Oracle Corporation (NYSE:ORCL) closed at $129.59 the same day and has gone the other way, shedding more than a quarter of its value over those six months. Two of the largest businesses in enterprise software, pulled apart by half a year of trading. Salesforce sells the system companies run their customer relationships through. Oracle sells databases and rents out the computing capacity that artificial intelligence models are trained on.
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What Salesforce Has:
The customer record lives in Salesforce, and so do the workflows the sales and service teams run on top of it. Replacing that means moving years of history and retraining the people who use it daily, which is why a slowing Salesforce is not a shrinking one. It converts about a fifth of revenue into operating profit and produced $14.4 billion of free cash flow in its last financial year.
What it lacks is growth. Revenue rose 10.80% in the most recent quarter, and the company is now buying what it cannot generate, agreeing on October 20 to pay $5.66 billion for the marketing software business Braze. The bigger risk sits in how it charges. Salesforce sells seats, so if software agents take on work that staff used to do, customers need fewer of them.
Both names appear in our 10 Most Promising Cloud Stocks According to Hedge Funds. To see the full ranking, click HERE.
What Oracle Has:
Oracle grew revenue 29.60% in the quarter just reported on a 35.63% operating margin, and underneath that sits the oldest annuity in software. Companies keep their most important records in Oracle databases, and the support that goes with them renews whether or not anything new is bought. That revenue pays for the build. What the market is being asked to price is the newer half, where Oracle rents capacity to companies training artificial intelligence models on contracts signed years in advance.
The build is the risk. Debt reaches 251.72% of equity, more than twice what Salesforce carries, and Oracle finished the past year with levered free cash flow of negative $45.85 billion despite generating a great deal from operations. Renting capacity also earns a thinner margin than licensing software, so faster revenue is not automatically the better business.
