Oracle’s $36 billion Aggressive Buy-Back Strategy is Leaving Investors Cold

Oracle has spent $36 billion on buying back its own shares over the last year and it has some analysts wondering what exactly the company is doing with their cash. While buying back stock is a time-honored tradition for companies looking to placate long-term investors at times of transition, the software giant has been hustling hard and will have clawed back almost 25 percent of their outstanding shares in the last year.

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Shareholders usually enjoy it when companies are looking to bring stock back home. It means they have an interested buyer if they want to sell and rewards long term-investors with bigger pieces of the company pie. Also, having fewer shares floating around the market means that it increases earnings-per-share which can contribute to a sense the company is financially healthy. When all rolled together, bringing more stock in-house can help stabilize the stock price while change is afoot.

The other side of the buy-back equation equals something more concerning than the need to balance out bumps in the share price. Wall Street skeptics look at this strategy as a way to financially engineer upticks in earnings-per-share instead of relying on profits from company growth. Oracle’s stock popped after the release of their fourth quarter numbers showed their adjusted earnings-per-share increased by 22 percent to $1.16 – beating predictions by an impressive $0.08.

On their face, the figures paint a picture of a legacy tech company rising from the ashes a la phoenix and realizing their true cloud-computing potential. In an earnings call transcript issued at the same time of their Q4 report, Catz had this to say about the company’s growth: “Total cloud services and license support revenues for the quarter were 6.8 billion, up 3 percent while cloud license and on-premise license revenues were 2.5 billion, up 15 percent.”

While Catz’s talk about cloud growth is upward trending, the less-than-silver lining that comes with this cumulonimbus is that it’s an extremely expensive venture to get up and running. It’s one of the reasons why vendors often look to offload those costs onto their hopefully magnanimous cloud providers. Oracle spends the billions building their data centers so their customers can revel in the convenience of infinitely scalable resources.

Concerns have been raised that the tech company’s attempts to keep up with cloud demand has not kept paced with softening sales in their legacy database and business software products. Any big pivot like the one Oracle has undertaken is likely to lead them being left between wind and water for a period of time before they catch the revenue winds once again. But if Catz is spending Oracle’s cash to assuage finicky investors over making acquisitions and strategic investments that could grow the company – it could leave them dead in the water.

“I cannot stress enough the stability and growth of our base of customers, quarter after quarter,” Catz said. “Our customers are maintaining and expanding this Oracle environment. And in our BYOL, bring your own license model, they have the portability to use their licenses on premise, in the cloud, or via hybrid environments.”

Despite Catz’s reassuring words, competitors like Amazon Web Services and Microsoft have been reaping the benefits of Oracle’s slower moving strategy. Whether the attempts to recover market shares will ultimately serve the company in the long-run remains to be seen.