Read more: Oracle revoked job offers for some people in the UK, blaming a hiring freeze. Oracle's management keeps insisting that as it grows its cloud business, it will be more profitable than its competitors because its costs are lower. Now, you might argue that Oracle is keeping a tight lid on its CapEx, even as it tries to become a cloud player, because it wants to control long-term costs and remain a highly profitable company. Still, Microsoft spent almost $9.9 billion in just its first nine months of FY 2019 investing in "additions to property and equipment" also known as capital expenditures (CapEx), according to its last quarterly report. It's not in Oracle's position of trying to play catch-up. It has already successfully transformed itself itself from a mostly old-school software vendor to a cloud giant. Take a look at the the number-two player in cloud, Microsoft. Data centers on the kind of massive scale that Oracle should need cost billions to build. Remember, Oracle is trying to build itself into a cloud computing giant to take on the likes of mighty Amazon Web Services and, more importantly, keep itself relevant in an age where its customers want the cloud.īuilding a cloud is extremely expensive, which is why its customers want their vendors to take on that expense for them. Here's what that meansīut massive buybacks have also been described as " financial engineering." Companies use them to beat Wall Street's expectations on earnings-per-share, as opposed to increasing profits the old fashioned way – by growing the business.Īnd these sorts of buybacks carry a real risk that the company is spending its money to placate investors, rather than investing in the business.įor example, in contrast to the $36 billion spent on stock buybacks, Oracle spent $1.66 billion on capital expenditures in 2019, down from the $1.73 billion it spent in 2018. Read more: Oracle Chairman Larry Ellison says the company added 5,000 new trials for its latest cloud database. Put this all together, and buybacks can keep share prices stable during a transition. Having fewer shares in circulations increases the earnings-per-share, which makes the company look healthy. It also rewards the steady, go-long investor because, as the company reduces the number of shares in circulation, each share represents a bigger piece of the corporate pie. Investors like stock buybacks for several reasons. Over the last five years, we've reduced the shares outstanding by almost 25% with nearly 60% of the total reduction this past year in FY19." Over the last 12 months, we have repurchased 734 million shares for a total of $36 billion. "This quarter, we repurchased 112 million shares for a total of $6 billion. Safra Catz, the Oracle CEO who runs finance, explained: It spent a whopping $36 billion on share buybacks in its just-completed 2019 fiscal year alone, the company said on Wednesday. Oracle has vigorously used this tactic in its last fiscal year. One of the tried-and-true tactics to keep investors happy when a company is going through a big transition is the stock buyback. Big buybacks offer some nice benefits to long-term shareholders, but they are rightly called "financial engineering" by others because they eat up funds that could be used to invest in, and grow, the business.Oracle has adopted this tactic with gusto in 2019.One of the oldest tricks in the book to keep investors happy when a company is going through a major transition is the stock buyback.Account icon An icon in the shape of a person's head and shoulders.
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