If you had invested $30,000 oracle (ORCL 0.75%) 30 years ago and with consistent reinvestment of your dividends, your investment today would be worth a whopping $2.43 million. From fiscal 1993 to fiscal 2023 (which ended in May of this year), the database software giant’s annual revenue grew at a compound annual growth rate (CAGR) of 12%, from $1.5 billion to $50 billion, during the Net profit increased at a CAGR of 16%. from $98 million to $8.5 billion.
Three strategies drove Oracle’s steady growth. First, the company was able to maintain its lead and dominance in the database software market. Second, the company recovered from some bad business decisions in the 1990s (including the misguided bet that network computers would overtake personal computers) by expanding its ecosystem through large acquisitions. Finally, the on-premises software was converted into cloud-based services.
As Oracle grew, its free cash flow skyrocketed, allowing the company to buy back more than half of its shares over the last three decades. In 2009, the company also started paying dividends. These shareholder-friendly strategies have made it a mature tech stock that is often held for stability rather than growth – but could it produce even more profits for millionaires in the future?
The mathematical path to another million dollars
Let’s say you missed Oracle’s previous rally but plan to invest $30,000 in the company today. Assuming valuations remain stable, the company would need to grow its earnings at a 12% annual growth rate over the next 30 years to convert this investment into $1 million.
That goal may seem achievable given Oracle’s growth rates over the past 30 years, but the company’s growth has actually slowed significantly over the past decade. From fiscal 2013 to fiscal 2023, Oracle’s revenue grew at just a 3% annual growth rate — while its continued buybacks boosted adjusted earnings per share (EPS) at a higher 7% annual growth rate.
The slowdown came despite Oracle acquiring a long list of companies – including cloud software giant NetSuite for $9.3 billion in 2016 and healthcare IT leader Cerner for $28.3 billion last year – to expand its portfolio of cloud-based services. Still, it continued to grow as the broader cloud market weathered the pandemic, geopolitical conflicts, rising interest rates and other macroeconomic headwinds over the past three years.
From fiscal 2023 to fiscal 2026, analysts expect Oracle’s revenue to grow at a CAGR of 9%, while adjusted earnings per share will grow at a CAGR of 33%. We should take these estimates with a grain of salt, but they suggest that the overall economy will warm as Oracle continues to expand its higher-growth cloud-based services. Therefore, its growth could stabilize and accelerate again over the next three decades – so it’s still a narrow but viable path to making multi-million dollar profits.
A lot could happen in the next 30 years
If Oracle turned $30,000 back into $1 million, its market cap would rise from $317 billion to $10.6 trillion. That valuation may seem unrealistic by today’s standards, but in 1993 it also seemed impossible for tech companies to reach trillion-dollar valuations. Additionally, inflation would make a $10 trillion market cap in 2053 significantly less impressive.
For now, investors should focus on the growth of Oracle’s cloud-based services, which accounted for 37% of revenue last quarter. Growth in this closely watched segment — currently driven by its Oracle Cloud Infrastructure (OCI) services, its NetSuite and Enterprise Resource Platform (ERP) services, and Cerner’s healthcare cloud services — must continue to slow Offsetting growth in its segment is on-premise software.
Oracle still faces stiff competition from leading public cloud providers such as Amazon Web Services (AWS), Microsoft Azure and alphabetis the Google Cloud Platform (GCP). On the bright side, the global cloud computing market could still grow at a compound annual growth rate of 17% from 2023 to 2032, according to Precedence Research, so there could be plenty of room for these leaders to grow without undermining each other trump.
Oracle should provide a good mix of stability and growth
Oracle could single-handedly make you a millionaire in the next few decades. But other higher-growth technology stocks could achieve this goal in a shorter time with greater certainty, and Oracle is arguably not as compelling a cloud company as Amazon, Microsoft or Alphabet. In other words, Oracle still offers a good mix of stability and growth in bear and bull markets, but investors should have realistic expectations of longer-term returns.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Leo Sun has positions at Alphabet and Amazon. The Motley Fool has positions in and recommends Alphabet, Amazon, Microsoft and Oracle. The Motley Fool has a disclosure policy.