Investment Thesis Rodney Nelson, Eq. Analyst, 19 September 2.docx

Investment Thesis
Rodney Nelson, Eq. Analyst, 19 September 2016
Oracle is at a crossroads, in our view. The rise of cloud
computing and open-source software over the last two
decades has caught the software giant somewhat
flat-footed, leaving the firm in scramble mode as it races
its peers to the cloud. While many of the company’s
products are under siege, we think the firm can maintain
its status near the top of the software food chain.
The relational database has long been the foundation of
Oracle’s fortress, upon which the company built its
middleware and application software businesses.
However, as enterprises increasingly look to lower total
cost of IT ownership, the once-fruitful economics of
infrastructure software have been compromised by
open-source alternatives. Oracle’s database business
remains a behemoth, but as workloads increasingly move
to the cloud, enterprises are abandoning the costly license
and support model of the past for subscriptions to more
cost-effective (and increasingly versatile) solutions. We
think this trend will erode Oracle’s prolific database
business over time, though not all is lost. The company’s
open-source MySQL solution has rapidly gained
prominence in the cloud, albeit at fractional pricing
relative to the company’s legacy database technology. We
think Oracle’s database can remain a functional business,
though it shouldn’t be relied upon to carry the business
forward.
Oracle’s pivot to the cloud has been heavily-publicized,

but the firm has begun to deliver meaningful results that
should reinforce customer switching costs. The company
undertook the onerous task of rewriting the source code
of its flagship applications for the software-as-a-service
(SaaS) delivery model over a decade ago. Those efforts
are beginning to bear fruit, and the firm continues to invest
heavily in both existing and new software solutions to
ensure Oracle customers don’t depart for SaaS rivals.
While we have some concerns that Oracle's cloud
migration will become increasingly complex in the short
term in light of recent acquisitions and the firm's generally
late move into the cloud, we ultimately believe Oracle can
retain its wide moat by retaining the bulk of its application
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We think Oracle has its work cut out for itself as it plays catch-
up in the
cloud.
Bulls Say
ODespite a late start, Oracle has made the
necessary investments to ensure its application
software will thrive in a cloud-based environment,
which should lock customers in over the long-run.
OOracle has made a bevy of savvy acquisitions to
expand its vertical-specific software portfolio,
applications that we believe boast meaningful

switching costs.
OOracle has become more flexible in recent years
to meet customer needs, including the embrace of
less expensive, open-source database solutions and
other technologies.
Bears Say
OIt will be difficult for Oracle halt the decay of its
legacy relational database business as lower-cost,
highly-effective alternatives flood the market.
OOracle's push into public compute and storage
could create a drag on cloud margins, and the firm is
years behind top market players Amazon and
Microsoft in terms of capacity and breadth and dept
of services.
OSalesforce.com and Workday are investing heavily
in building rival, full-featured software platforms
spanning multiple use cases to combat Oracle’s.
Morningstar Pillars Analyst Quantitative
Economic Moat Wide Wide
Valuation QQQ Fairly Valued
Uncertainty Medium Low
Financial Health — Strong
Current 5-Yr Avg Sector Country
Price/Quant Fair Value 1.02 0.93 1.03 1.02
Price/Earnings 18.4 17.0 21.9 21.1
Forward P/E 14.7 — 16.2 15.3
Price/Cash Flow 12.1 12.5 13.9 11.9
Price/Free Cash Flow 13.1 13.2 19.5 17.7

Trailing Dividend Yield% 1.55 0.98 1.92 2.06
software customers.
Analyst Note
We came away from Oracle’s OpenWorld conference and
analyst day with new insights into how the company is
approaching the secular shift to cloud computing. The
most surprising move came in the unveiling of the
company’s next-generation infrastructure-as-a-service
offering, which management alluded to on its first-quarter
conference call last week. Previously, Oracle had been
reticent about the idea of competing directly with public
cloud behemoths Amazon and Microsoft, but it appears
Oracle will address this market full bore moving forward.
While this move unlocks new opportunities for Oracle, we
maintain our $38 fair value estimate (as we remain
skeptical of the IaaS strategy), and we maintain our wide
economic moat and negative moat trend ratings.
The bulk of the conversation during Oracle’s analyst day
focused around the company’s cloud offerings spanning
SaaS, PaaS, and IaaS. In particular, the SaaS and PaaS
businesses represent the most developed product
offerings for the company and the most readily
addressable markets in the cloud. The company has now
landed 12,500 SaaS customers (which does not account
for the pending NetSuite acquisition), and management
highlighted a strengthening pipeline that should yield
significant growth over the next several years as
enterprises migrate business applications to the cloud
more aggressively. The company has 8,000 potential
customers in its pipeline (ex-NetSuite), while more than
50% of its SaaS customers are new to Oracle. However,

the bulk of the firm’s SaaS customer base remains in the
mid-market, and we continue to believe large customers
could be at risk of jumping ship to cloud-native SaaS
vendors such as Salesforce.com and Workday, which have
proven their scalability. Further, the PaaS pipeline is
growing (bookings more than doubled between third and
fourth quarter last year), which instills confidence the
company will not be caught flatfooted when considering
the long term for its middleware customers.
Economic Moat
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Undervalued Fairly Valued Overvalued
Quantitative Valuation
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We assign Oracle a wide economic moat. The firm’s
competitive positioning remains buoyed by its robust
application and infrastructure software business,
headlined by the firm’s flagship database business.
Oracle’s presence in the database market remains
unmatched, as the firm boasts upwards of 40% share in
the relational database management software vertical.
These solutions boast substantial switching costs, as
integration and training times are typically intensive and
compatibility concerns generally are too great a risk for
enterprises to consider replacing a database vendor. The

eruption of big data has placed greater importance on the
stability and speed of the underlying database technology
utilized to glean critical insights from massive information
sets, and we believe Oracle has made ample investments
both in its own technology and via acquisition to maintain
its strong database business within on-premises data
centers. Still, we acknowledge the firm’s pricey road map
for cloud migrations, minimal presence as an
infrastructure-as-a-service provider, and an influx of
open-source database technologies all pose threats to the
business. Database sales contribute roughly 30% of
Oracle’s consolidated revenue base.
We believe Oracle’s application software business boasts
significant customer switching costs. The company
remains among the most important players in the human
capital and enterprise resource management market, a
business built through both in-house development and
large acquisitions such as PeopleSoft and JD Edwards.
Further, Oracle has built a broad portfolio of
industry-specific software solutions that generally
feature extra layers of customization increasing customer
lock-in. The firm has been forced to play catch up in terms
of moving customers to the cloud, but we think the
company will be able to retain its existing application
software customers as enterprises increasingly look to
migrate applications to the cloud. We think the
comfortability existing customers have with Oracle
solutions and the mission-criticality of these applications
will ultimately prevent the sort of customer exodus that
Close Competitors Currency (Mil) Market Cap TTM Sales
Operating Margin TTM/PE
Microsoft Corp MSFT USD 445,654 85,320 23.65 27.25

International Business Machines Corp IBM USD 147,955
80,261 15.63 12.61
SAP SE SAP USD 108,858 23,457 23.46 26.67
HP Inc HPQ USD 26,416 99,884 5.44 6.15
could threaten this segment’s competitive advantages.
The middleware market has become increasingly reliant
on open-source technologies as developers look to utilize
a wider swath of languages and tools to build robust IT
solutions. We think that switching costs around
middleware are still quite high, but this business faces
cloud computing threats as well. Oracle’s Java-heavy
Fusion middleware business remains a crucial component
to application developers around the world, particularly
given its status as the most widely-used programming
language. As applications increasingly move to the cloud,
Oracle will need to continue to invest in its PaaS solutions
to provide the level of agility customers seek. Oracle’s
PaaS business made minimal revenue contributions in
fiscal 2015, according to Gartner.
Oracle’s hardware business built around engineered
systems likely boasts some level of switching costs, as
these products leverage pre-installed software solutions
on top of largely commodified hardware. However,
revenue contributions from this business are in decline,
and we do not believe this business contributes materially
(or detracts from) Oracle’s competitive position.
Valuation
Our fair value estimate is $38 per share, which implies a

2016 enterprise value/sales ratio of roughly 4.1 times,
adjusted P/E ratio of 13.8 times, and free cash flow yield
of roughly 7.3%. We have not yet incorporated the
financial impact of the pending NetSuite acquisition into
our model, as the deal is still pending approval of shares
held by entities outside of Oracle CEO Larry Ellison's
control. The deal is expected to close within calendar
2016.
Though Oracle's cloud transition has caused revenue
growth to stagnate in recent years, we think revenue
should stabilize in fiscal 2017 before resuming modest,
low-single-digit growth over the next several years.
Revenue growth will largely be restored by the
software-as-a-service and platform-as-a-service businesses,
offset by declines in the legacy database and hardware
businesses. We expect operating margins to hover in the
mid-30s range over the course of our explicit forecast
period, though we should note that the ratable nature of
subscription revenue could result in near-term margin
compression. We have captured this impact in higher
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selling, general, and administrative costs over the course
of our five-year explicit forecast period, costs we expect
to persist and ultimately prevent Oracle from returning to
the 40% operating margins the firm once enjoyed.
In this case, we assume the firm’s database business
continues to gradually erode from both a revenue and
market share perspective, catalyzed by both the uptake
of open-source solutions and offerings from rival legacy
vendors such as Microsoft’s SQL Server. However, we are
forecasting substantial growth in the firm’s cloud
verticals. We expect this business to grow roughly 35%
annually over the next five years, with total revenue
contributions reaching nearly $10 billion annually by the
end of our explicit forecast period.
Risk

We think the clearest risks to Oracle’s business stem from
the firm’s database segment. Open-source technology is
becoming increasingly present in the IT stack, including
in the database layer. Further, perceived issues with
compatibility (or lack thereof) when considering migrating
away from Oracle’s relational database have begun to
dissipate, with many lower-cost alternatives allowing
ample compatibility with Oracle’s applications and
middleware. While open-source alternatives to
middleware are present (most notably from Red Hat’s
JBoss), we do not think there is as much clear and present
danger, but this is certainly a dynamic worth paying
attention to. We think Oracle's push in the public compute
and storage market is a meaningful risk, particularly given
the capital expenditure requirements needed to compete
in this market and the multi-year head start both Amazon
and Microsoft hold over Oracle. Finally, Oracle will
continue to feel the pressure to innovate within its
application software business, as Salesforce.com and
Workday pose the most significant threats to the firm’s
customer base. We think the company has taken the
appropriate steps to deliver viable solutions for its existing
customers, but we think Oracle will need to continue to
invest in its applications to ensure it can deliver on its
service-level agreements and customer demands to
prevent an exodus.
Management
Oracle’s rating as a steward of shareholder capital is
Standard. Safra Catz and Mark Hurd serve as co-CEOs for
Oracle. Larry Ellison cofounded Oracle in 1977 and was

CEO until 2014, when he assumed the role of CTO. Catz
has been with the company since 1999, providing
instrumental direction for Oracle's massive serial
acquisition strategy during the past decade. Hurd joined
Oracle in 2010, after five years as Hewlett-Packard's CEO.
Despite being highly acquisitive during the past decade,
management has been disciplined in its capital-allocation
decisions and has avoided overpaying for acquisitions, in
our opinion. Oracle has been prudent in balancing
investment and returning cash to shareholders, both in
form of dividends and continued share buybacks. The firm
instituted a dividend in fiscal 2009, and net share
repurchases have totaled nearly $14 billion in the last two
fiscal years.
Though Ellison should be credited for building Oracle into
the giant it is today, his ongoing presence as Chief
Technology Officer is puzzling. His vision, or lack thereof,
is at least partly responsible for Oracle’s late move into
the cloud after years of lambasting the cloud computing
movement, but we think he has taken appropriate action
to ensure Oracle’s business can not only survive, but thrive
as enterprises increasingly look to the cloud. We think the
pending NetSuite acquisition is at least an attempt to
accelerate Oracle's cloud migration, but we do not believe
the synergies Oracle hopes to enjoy are terribly obvious,
particularly given NetSuite's role as a middle market
vendor, which could leave Oracle's larger application
software customers vulnerable to switching to other cloud
software vendors such as Salesforce.com or Workday.

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Analyst Notes Archive
Relaunching Coverage on Oracle; Lowering Moat
Trend Rating to Negative, FVE to $38
Rodney Nelson, Eq. Analyst, 02 June 2016
We are relaunching coverage on Oracle as we transfer
coverage to a new analyst. We believe Oracle’s wide

economic moat remains intact, but the firm is at a
crossroads as it works to migrate application software
and middleware customers to the cloud while
simultaneously combating the erosion of its legacy
database business. We are lowering our fair value
estimate to $38 per share from $44 previously as we
incorporate fresh assumptions about how Oracle will
handle this business model transition, and we believe
shares are fairly valued at current levels.
The most important takeaway from our revised outlook
for Oracle is the expanding assault on the firm’s legacy
database business. Historically, software compatibility
concerns and minimal viable alternatives allowed Oracle
to command premium pricing on its database solutions.
However, with the rise of lower-cost alternatives from
legacy rivals such as Microsoft’s SQL Server and
open-source upstarts, we are beginning to see erosion in
Oracle’s database business, both from a revenue and
switching cost perspective. This is increasingly apparent
in public cloud environments, where open-source
solutions have matured to the point to mitigate
compatibility concerns with Oracle’s products while the
extreme cost savings are lowering customer switching
costs. We think Oracle can manage this decline elegantly,
but we expect database revenue to continue to wane over
time.
We think the application and middleware businesses will
retain their wide moat characteristics built on customer
switching costs and intangible assets. The former moat
source should hold water as customers continue to value
Oracle’s applications around CRM, ERP, HCM, and
Java-based Fusion middleware such that a rip-and-replace
would be too costly. Further, Oracle’s vertical-specific
application portfolio looks attractive to us, particularly

given the intimate knowledge required to build (and
ultimately train end users) to use these products.
No Denying Oracle’s Strong Cloud Growth, but
Database Challenges Remain
Oracle’s surge into the cloud continued in the firm’s fourth
quarter, as software- and platform-as-a-service revenue
growth accelerated once again. We continue to view this
business as the linchpin of Oracle’s long-term success,
though we maintain our concern over how Oracle will
handle an increasingly competitive database market. We
are maintaining our $38 fair value estimate, wide moat
rating, and negative moat trend rating, and investors
should seek a wider margin of safety before putting new
capital to work in this name.
Fourth-quarter revenue fell roughly 1% (flat in constant
currency) to $10.6 billion, as cloud revenue growth was
unable to completely offset fading on-premises license
sales. We are encouraged by the improving metrics in the
SaaS and PaaS businesses across both growth and
profitability, as revenue rose roughly 66% versus the
prior-year period while gross margins expanded to 56%,
the segment’s highest quarterly mark since the first
quarter of 2015. Management expects further
improvement in this segment in fiscal 2017, calling for
even faster growth than the 49% generated in fiscal 2016.
Customers are clearly migrating at an accelerated pace to
cloud-based applications and development platforms, as
Oracle booked over 1,600 new SaaS customers and 2,000
new PaaS customers in the quarter.
Although management touted increasing demand for its

somewhat-mischaracterized infrastructure-as-a-service
business, this segment continues to generate minimal
growth. This factor in particular gives us pause, as Oracle’s
answer for database declines lies in its database-as-a-service
initiative (revenue categorized as PaaS). We question how
large this opportunity can be, particularly given the influx
of open-source database software entering the market as
viable, far more cost-effective alternatives. Ultimately,
Oracle will need to effectively balance the decline of
traditional database sales while ensuring it hangs onto its
application customers.
No Change to Our Software Outlook Post-Brexit;
Microsoft, Salesforce.com Offer Best Opportunities
We are not making any material changes to our valuations
across the software space after evaluating the potential
impact of last week’s Brexit vote. Although some firms are
more exposed than others to European countries and to
currency risk associated with the British pound and euro,
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we believe our estimates for those with the heaviest
exposure to the region have a buffer built in to withstand
any currency or sales headwinds that may materialize.
Microsoft remains one of our best investment ideas, and
shares look attractive versus our $61 fair value estimate.
Although the firm has meaningful exposure to foreign
locales (roughly 50% of revenue came from international
markets over the past three years), we expect Microsoft’s
cloud businesses to generate the bulk of its growth in the
U.S. in the near term, which we believe insulates the
company’s revenue streams. In particular, we think Azure
is generating the overwhelming majority of its revenue
from U.S. customers today, although we acknowledge
Microsoft is rapidly building out capacity overseas as well.
While sales cycles may lengthen in European regions as
a result of the vote, we still expect enterprises to view

shifts to SaaS, PaaS and IaaS as means of cost savings,
which should yield strong returns on invested capital in
the long run. Our estimates include the impact of LinkedIn
beginning in fiscal 2017; while the Street has not broadly
accounted for these contributions, we expect our
estimates to be modestly below consensus estimates
post-close, providing a margin of safety if business
conditions in Europe worsen.
Salesforce.com remains a name to watch should shares
continue to retreat. The firm generates less than 20% of
its sales from European markets, and Americas revenue
continues to grow in line with consolidated sales despite
a much larger base (roughly 74% of sales). Shares are
trading in shallow 4-star territory today, but should be
near the top of shopping lists on further declines.
Where There’s Smoke, There’s Fire: Oracle
Acquires SaaS ERP Vendor NetSuite
Rodney Nelson, Eq. Analyst, 28 July 2016
On July 28, Oracle entered into an agreement to acquire
cloud-based ERP vendor NetSuite for $9.3 billion (or $109
per NetSuite share). Rumors about an Oracle-NetSuite
deal have circulated for years, but those reports have
picked up steam of late, materializing in today’s deal.
There is little chance another buyer will enter the fray,
considering that Oracle co-founder Larry Ellison holds a
40% stake in NetSuite, and the deal should close in 2016.
We are maintaining our wide moat rating for Oracle, and
we may modestly change our $38 fair value estimate.
While no conference call is scheduled to discuss the deal
at time of writing, NetSuite will report its second-quarter
earnings results on July 28, and we plan to update our
view should any material details surface.

On its face, this deal should help accelerate Oracle’s push
into the ERP software-as-a-service, or SaaS, space, a
market in which the company has been working feverishly
to convert legacy on-premises customers to cloud-based
deployments. For those same reasons, we don't view this
move as a total slam dunk for Oracle. NetSuite primarily
provides ERP solutions to small and midsize businesses,
a market the company has remain wholly focused on. We
believe Oracle was having the most success in converting
existing SMB customers to its cloud-based ERP suite,
while larger customers have abstained from migrating
thus far over concerns about scalability and reliability. We
do not believe the NetSuite deal addresses these issues
off the bat, though given NetSuites’s cloud-native
platform, it appears Oracle will attempt to scale and sell
NetSuite’s solutions to larger customers. This strategy
would likely lengthen the integration period for NetSuite,
delaying Oracle’s ability to glean returns on the purchase
price (though Oracle expects NetSuite to be immediately
accretive to non-GAAP earnings). Further, the price is
certainly a premium, standing at 9.6 times the consensus
estimate for NetSuite’s fiscal 2016 sales.
Where There’s Smoke, There’s Fire: Oracle Acquires
SaaS ERP Vendor NetSuite
Rodney Nelson, Eq. Analyst, 28 July 2016
On July 28, Oracle entered into an agreement to acquire
cloud-based enterprise resource planning vendor
NetSuite for $9.3 billion, or $109 per NetSuite share.
Rumors about an Oracle-NetSuite deal have circulated for
years, but those reports have picked up steam lately. There
is little chance that another buyer will enter the fray,
considering Oracle co-founder Larry Ellison holds a 40%
stake in NetSuite, and the deal should close in 2016. We

are maintaining our wide moat rating for Oracle. After
evaluating the impact of the merger on our valuation
model, we are maintaining our $38 fair value estimate for
Oracle, and shares remain fairly valued in our view.
On its face, this deal should help accelerate Oracle’s push
into the ERP software-as-a-service space, a market in
which the company has been working feverishly to convert
legacy on-premises customers to cloud-based deployments.
For those same reasons, this move is not a total slam dunk
for Oracle, in our view. NetSuite primarily provides ERP
solutions to small and medium-size businesses, a market
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the company has remained wholly focused on. We believe
that Oracle was having the most success in converting
existing SMB customers to its cloud-based ERP suite,
while larger customers have abstained from migrating
thus far over concerns about scalability and reliability. We
do not believe the NetSuite deal addresses these issues
off the bat, though given NetSuite’s cloud-native platform,
it appears Oracle will attempt to scale and sell NetSuite’s
solutions to larger customers. This strategy would likely
lengthen the firm’s integration period for NetSuite,
delaying Oracle’s ability to glean returns on the purchase
price (though Oracle expects NetSuite to be immediately
accretive to non-GAAP earnings). Further, the price is
certainly a premium, standing at roughly 9.6 times the
consensus estimate for NetSuite’s fiscal 2016 sales.
Accelerating Cloud Growth Remains Crucial to
Oracle’s Future; Shares Fairly Valued.
Oracle’s first quarter of fiscal 2017 looked similar to many
of the firm’s most recent quarters, with software- and
platform-as-a-service revenue continuing to serve as the
key driver for the business. We think this bodes well for
Oracle’s long-term success, though we still have concerns
over the firm’s ability to offset likely declines in its

database business in the long run. We do not expect to
make a material change to our $38 fair value estimate,
and we retain our wide moat rating. Shares look fairly
valued after a 3% selloff on the heels of these results.
Revenue for the quarter grew 2% (3% in constant
currency) to $8.6 billion, and for the first time, absolute
dollar growth in cloud revenue exceeded the decline in
new on-premise license sales, though it remains foggy
how much of Oracle’s cloud business consists of
greenfield opportunities versus cannibalization of existing
on-premise customers (particularly with larger customers).
SaaS and PaaS revenue increased 77% year over year,
and strong billings metrics indicate that the cloud pipeline
remains promising. SaaS and PaaS gross margin rose to
60%, the segment’s highest profitability mark to date, in
line with management’s expectation for consistent margin
expansion in fiscal 2017. Oracle added 776 new SaaS
customers in the quarter, of which 344 were Fusion ERP
customers.
Operating expenses grew at a faster clip than recent
quarters, partly due to a one-time legal settlement, but
also due to a spike in sales and marketing expenditures,
which we generally expect as cloud revenue increases in
the overall sales mix. While it is too soon to draw
conclusions, we are curious whether Oracle will have to
maintain high sales and marketing expenses (and extreme
product discounts) as it moves existing software
customers to the cloud. Management claims a majority of
the cloud revenue growth so far has been from new
customers, but we suspect these customers are primarily
in the small and midsize enterprise market.
Cloud Computing (What Else?) Takes Center Stage

at OpenWorld, but Our Outlook is Unchanged
We came away from Oracle’s OpenWorld conference and
analyst day with new insights into how the company is
approaching the secular shift to cloud computing. The
most surprising move came in the unveiling of the
company’s next-generation infrastructure-as-a-service
offering, which management alluded to on its first-quarter
conference call last week. Previously, Oracle had been
reticent about the idea of competing directly with public
cloud behemoths Amazon and Microsoft, but it appears
Oracle will address this market full bore moving forward.
While this move unlocks new opportunities for Oracle, we
maintain our $38 fair value estimate (as we remain
skeptical of the IaaS strategy), and we maintain our wide
economic moat and negative moat trend ratings.
The bulk of the conversation during Oracle’s analyst day
focused around the company’s cloud offerings spanning
SaaS, PaaS, and IaaS. In particular, the SaaS and PaaS
businesses represent the most developed product
offerings for the company and the most readily
addressable markets in the cloud. The company has now
landed 12,500 SaaS customers (which does not account
for the pending NetSuite acquisition), and management
highlighted a strengthening pipeline that should yield
significant growth over the next several years as
enterprises migrate business applications to the cloud
more aggressively. The company has 8,000 potential
customers in its pipeline (ex-NetSuite), while more than
50% of its SaaS customers are new to Oracle. However,
the bulk of the firm’s SaaS customer base remains in the
mid-market, and we continue to believe large customers
could be at risk of jumping ship to cloud-native SaaS
vendors such as Salesforce.com and Workday, which have

proven their scalability. Further, the PaaS pipeline is
growing (bookings more than doubled between third and
fourth quarter last year), which instills confidence the
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company will not be caught flatfooted when considering
the long term for its middleware customers.
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Oracle Corp ORCL QQQQ 11 Oct 2016 02:00 UTC
Last Close Fair ValueQ Market Cap Sector Industry Country of
Domicile
11 Oct 2016 11 Oct 2016 02:00 UTC 11 Oct 2016
38.01 37.21 158.6 Bil a Technology Software - Infrastructure
USA United States
There is no one analyst in which a Quantitative Fair Value
Estimate and Quantitative
Star Rating are attributed to; however, Mr. Lee Davidson, Head
of Quantitative
Research for Morningstar, Inc., is responsible for overseeing the
methodology that
supports the quantitative fair value. As an employee of
Morningstar, Inc., Mr.
Davidson is guided by Morningstar, Inc.’s Code of Ethics and
Personal Securities
Trading Policy in carrying out his responsibilities. For
information regarding Conflicts
of Interests, visit
http://global.morningstar.com/equitydisclosures
Company Profile
Oracle Corp develops, manufactures, markets, hosts and
supports database and middleware software, application
software, cloud infrastructure, hardware system including
computer server, storage and networking products and related
services.
Quantitative Scores Scores
All Rel Sector Rel Country
Quantitative Moat Wide 100 100 100
Valuation Fairly Valued 41 52 57
Quantitative Uncertainty Low 100 100 99

Financial Health Strong 91 94 91
Source: Morningstar Equity Research
aUSA
ORCL
Undervalued Fairly Valued Overvalued
Valuation
Current 5-Yr Avg
Sector
Median
Country
Median
Price/Quant Fair Value 1.02 0.93 1.03 1.02
Price/Earnings 18.4 17.0 21.9 21.1
Forward P/E 14.7 — 16.2 15.3
Price/Cash Flow 12.1 12.5 13.9 11.9
Price/Free Cash Flow 13.1 13.2 19.5 17.7
Trailing Dividend Yield % 1.55 0.98 1.92 2.06
Price/Book 3.3 3.7 2.2 2.4
Price/Sales 4.4 4.6 1.5 1.9
Profitability
Current 5-Yr Avg
Sector
Median
Country
Median

Return on Equity % 19.0 22.4 11.4 11.9
Return on Assets % 7.7 11.5 6.0 4.7
Revenue/Employee (K) 273.5 301.7 385.1 302.9
Financial Health
Current 5-Yr Avg
Sector
Median
Country
Median
Distance to Default 0.8 0.8 0.6 0.5
Solvency Score 403.2 — 483.2 581.6
Assets/Equity 2.4 2.0 1.6 1.7
Long-Term Debt/Equity 0.8 0.5 0.1 0.3
Price vs. Quantitative Fair Value
12
24
36
48
60
2012 2013 2014 2015 2016 2017 Quantitative Fair Value
Estimate
Total Return
Sales/Share
Forecast Range

Forcasted Price
Dividend
Split
Momentum: Neutral
Standard Deviation: 16.56
Liquidity: High
33.13 52-Wk 42.00
24.91 5-Yr 46.71
31.5 15.5 18.8 -17.5 5.7 Total Return %
15.3 -17.6 5.9 -18.2 -0.8 +/– Market (Morningstar US Index)
0.72 0.63 1.07 1.56 — Trailing Dividend Yield %
— — — — 1.55 Forward Dividend Yield %
15.7 16.3 18.7 17.6 18.4 Price/Earnings
4.5 4.8 5.3 4.3 4.4 Price/Revenue
Morningstar RatingQ
Q
QQ
QQQ
QQQQ
QQQQQ
2012 2013 2014 2015 2016 TTM Financials (Fiscal Year in Mil)
37,121 37,180 38,275 38,226 37,047 37,194 Revenue
4.2 0.2 2.9 -0.1 -3.1 0.4 % Change
13,706 14,684 14,759 13,871 12,604 12,591 Operating Income
13.9 7.1 0.5 -6.0 -9.1 -0.1 % Change

9,981 10,925 10,955 9,938 8,901 8,986 Net Income
13,743 14,224 14,921 14,336 13,561 13,555 Operating Cash
Flow
-648 -650 -580 -1,391 -1,189 -1,042 Capital Spending
13,095 13,574 14,341 12,945 12,372 12,513 Free Cash Flow
35.3 36.5 37.5 33.9 33.4 33.6 % Sales
1.96 2.26 2.38 2.21 2.07 2.10 EPS
17.4 15.3 5.3 -7.1 -6.3 1.4 % Change
2.57 2.65 3.10 2.99 2.87 2.94 Free Cash Flow/Share
0.24 0.12 0.48 0.51 0.60 0.60 Dividends/Share
8.91 9.33 10.02 11.07 11.10 11.55 Book Value/Share
4,734 4,497 4,391 4,201 4,106 4,106 Shares Outstanding (Mil)
Profitability
23.9 24.7 23.9 20.8 18.6 19.0 Return on Equity %
13.1 13.6 12.7 9.9 8.0 7.7 Return on Assets %
26.9 29.4 28.6 26.0 24.0 24.2 Net Margin %
0.49 0.46 0.44 0.38 0.33 0.32 Asset Turnover
1.8 1.8 1.9 2.3 2.4 2.6 Financial Leverage
78.8 80.9 81.1 80.3 79.8 80.1 Gross Margin %
36.9 39.5 38.6 36.3 34.0 33.9 Operating Margin %
13,524 18,494 22,667 39,959 40,105 53,057 Long-Term Debt
43,688 44,648 46,878 48,663 47,289 47,435 Total Equity
12.6 12.2 12.5 11.3 9.6 9.3 Fixed Asset Turns
Growth Per Share

1-Year 3-Year 5-Year 10-Year
Revenue % -3.1 -0.1 0.8 9.9
Operating Income % -9.1 -5.0 0.9 10.3
Earnings % -6.3 -2.9 4.4 12.5
Dividends % 17.7 71.0 23.4 —
Book Value % 2.2 6.0 7.8 15.1
Stock Total Return % 1.3 6.0 5.4 8.2
Quarterly Revenue & EPS
Revenue (Mil) Aug Nov Feb May Total
2016 8,448.0 8,993.0 9,012.0 10,594.0 37,047.0
2015 8,596.0 9,598.0 9,327.0 10,706.0 38,226.0
2014 8,372.0 9,275.0 9,307.0 11,320.0 38,275.0
2013 8,181.0 9,094.0 8,958.0 10,947.0 37,180.0
Earnings Per Share ()
2016 0.40 0.51 0.50 0.66 2.07
2015 0.48 0.56 0.56 0.62 2.21
2014 0.47 0.56 0.56 0.80 2.38
2013 0.41 0.53 0.52 0.80 2.26
Revenue Growth Year On Year %
2.7
3.5
0.2
-5.4
-1.7
-6.3
-3.4

-1.0
1.7
2014 2015 2016
Quantitative Equity Report | Release: 11 Oct 2016, 18:31 UTC |
Reporting Currency: USD | Trading Currency: USD |
Exchange:XNYS
© Morningstar 2016. All Rights Reserved. Unless otherwise
in the country in which its original distributor is based. The
information, data, analyses and
opinions presented herein do not constitute investment advice;
are provided solely for informational purposes and therefore is
not an offer to buy or sell a security; are not warranted to be
correct, complete or accurate; and
are subject to change without notice. Except as otherwise
required by law, Morningstar shall not be responsible for any
trading decisions, damages or other losses resulting from, or
related to, the information, data,
analyses or opinions or their use. The information herein may
not be reproduced, in any manner without the prior written
consent of Morningstar. Please see important disclosures at the
end of this report.
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®
Page 1 of 1Page 8 of 15

Research Methodology for Valuing Companies
Qualitative Equity Research Overview
At the heart of our valuation system is a detailed
projection of a company’s future cash flows, re-
sulting from our analysts’ research. Analysts cre-
ate custom industry and company assumptions
to feed income statement, balance sheet, and
capital investment assumptions into our globally
standardized, proprietary discounted cash flow,
or DCF, modeling templates. We use scenario
analysis, in-depth competitive advantage analy-
sis, and a variety of other analytical tools to aug-
ment this process. Moreover, we think analyzing
valuation through discounted cash flows pres-
ents a better lens for viewing cyclical companies,
high-growth firms, businesses with finite lives
(e.g., mines), or companies expected to generate
negative earnings over the next few years. That
said, we don’t dismiss multiples altogether but
rather use them as supporting cross-checks for
our DCF-based fair value estimates. We also ac-
knowledge that DCF models offer their own chal-
lenges (including a potential proliferation of esti-
mated inputs and the possibility that the method

may miss short-term market-price movements),
but we believe these negatives are mitigated by
deep analysis and our long-term approach.
Morningstar, Inc. and its affiliates (“Morning-
star”, “we”, “our”) believes that a company’s in-
trinsic worth results from the future cash flows it
can generate. The Morningstar Rating for stocks
identifies stocks trading at a discount or premium
to their intrinsic worth—or fair value estimate, in
Morningstar terminology. Five-star stocks sell for
the biggest risk-adjusted discount to their fair
values, whereas 1-star stocks trade at premiums
to their intrinsic worth.
Four key components drive the Morningstar rat-
ing: (1) our assessment of the firm’s economic
moat, (2) our estimate of the stock’s fair value, (3)
our uncertainty around that fair value estimate
and (4) the current market price. This process ultimately
culminates in our single-point star rating.
1. Economic Moat
The concept of an economic moat plays a vital role not
only in our qualitative assessment of a firm’s long-term
investment potential, but also in the actual calculation
of our fair value estimates. An economic moat is a
structural feature that allows a firm to sustain excess
profits over a long period of time. We define economic
profits as returns on invested capital (or ROIC) over and
above our estimate of a firm’s cost of capital, or weight-
ed average cost of capital (or WACC). Without a moat,
profits are more susceptible to competition. We have
identified five sources of economic moats: intangible

assets, switching costs, network effect, cost advantage,
and efficient scale.
Companies with a narrow moat are those we believe
are more likely than not to achieve normalized excess
returns for at least the next 10 years. Wide-moat com-
panies are those in which we have very high confi-
dence that excess returns will remain for 10 years, with
excess returns more likely than not to remain for at
least 20 years. The longer a firm generates economic
profits, the higher its intrinsic value. We believe low-
quality, no-moat companies will see their normalized
returns gravitate toward the firm’s cost of capital more
quickly than companies with moats.
To assess the sustainability of excess profits, analysts
perform ongoing assessments of the moat trend. A
firm’s moat trend is positive in cases where we think its
sources of competitive advantage are growing stron-
ger; stable where we don’t anticipate changes to com-
petitive advantages over the next several years; or neg-
ative when we see signs of deterioration.
2. Estimated Fair Value
Combining our analysts’ financial forecasts with the
firm’s economic moat helps us assess how long returns
on invested capital are likely to exceed the firm’s cost of
Margin of Safety
Market Pricing
Morningstar Fair Value Morningstar RatingTM For Stocks
QQQQQ

Stewardship
Uncertainty
Economic Moat
Financial Health
Moat Trend
Morningstar Research Methodology for Valuing Companies
capital. Returns of firms with a wide economic moat rat-
ing are assumed to fade to the perpetuity period over a
longer period of time than the returns of narrow-moat
firms, and both will fade slower than no-moat firms, in-
creasing our estimate of their intrinsic value.
Our model is divided into three distinct stages:
Stage I: Explicit Forecast
In this stage, which can last five to 10 years, analysts
make full financial statement forecasts, including items
such as revenue, profit margins, tax rates, changes in
working-capital accounts, and capital spending. Based
on these projections, we calculate earnings before in-
terest, after taxes (EBI) and the net new investment
(NNI) to derive our annual free cash flow forecast.
Stage II: Fade
The second stage of our model is the period it will take
the company’s return on new invested capital—the re-
turn on capital of the next dollar invested (“RONIC”)—
to decline (or rise) to its cost of capital. During the Stage
II period, we use a formula to approximate cash flows in
lieu of explicitly modeling the income statement, bal-
ance sheet, and cash flow statement as we do in Stage
I. The length of the second stage depends on the

strength of the company’s economic moat. We forecast
this period to last anywhere from one year (for compa-
nies with no economic moat) to 10–15 years or more (for
wide-moat companies). During this period, cash flows
are forecast using four assumptions: an average growth
rate for EBI over the period, a normalized investment
rate, average return on new invested capital (RONIC),
and the number of years until perpetuity, when excess
returns cease. The investment rate and return on new
invested capital decline until a perpetuity value is calcu-
lated. In the case of firms that do not earn their cost of
capital, we assume marginal ROICs rise to the firm’s
cost of capital (usually attributable to less reinvestment),
and we may truncate the second stage.
Stage III: Perpetuity
Once a company’s marginal ROIC hits its cost of capital,
we calculate a continuing value, using a standard per-
petuity formula. At perpetuity, we assume that any
growth or decline or investment in the business neither
creates nor destroys value and that any new investment
provides a return in line with estimated WACC.
Because a dollar earned today is worth more than a dol-
lar earned tomorrow, we discount our projections of
cash flows in stages I, II, and III to arrive at a total pres-

?
ent value of expected future cash flows. Because
we are modeling free cash flow to the firm—rep-
resenting cash available to provide a return to all
capital providers—we discount future cash
flows using the WACC, which is a weighted aver-
age of the costs of equity, debt, and preferred
stock (and any other funding sources), using ex-
pected future proportionate long-term, market-
value weights.
3. Uncertainty around that fair value estimate
Morningstar’s Uncertainty Rating captures a

range of likely potential intrinsic values for a
company and uses it to assign the margin of safe-
ty required before investing, which in turn explic-
itly drives our stock star rating system. The Un-
certainty Rating represents the analysts’ ability
to bound the estimated value of the shares in a
company around the Fair Value Estimate, based
on the characteristics of the business underlying
the stock, including operating and financial lever-
age, sales sensitivity to the overall economy,
product concentration, pricing power, and other
company-specific factors.
Analysts consider at least two scenarios in addi-
tion to their base case: a bull case and a bear
case. Assumptions are chosen such that the ana-
lyst believes there is a 25% probability that the
company will perform better than the bull case,
and a 25% probability that the company will per-
form worse than the bear case. The distance be-
tween the bull and bear cases is an important in-
dicator of the uncertainty underlying the fair
value estimate.
Our recommended margin of safety widens as
our uncertainty of the estimated value of the eq-
uity increases. The more uncertain we are about
the estimated value of the equity, the greater the
discount we require relative to our estimate of
the value of the firm before we would recom-
mend the purchase of the shares. In addition, the
uncertainty rating provides guidance in portfolio
construction based on risk tolerance.
Our uncertainty ratings for our qualitative analysis
are low, medium, high, very high, and extreme.

3Low: margin of safety for 5-star rating is a 20%
discount and for 1-star rating is 25% premium.
Price/Fair Value
2.75
2.25
1.75
1.25
0.75
0.25
* Occasionally a stock’s uncertainty will be too high for us to
estimate, in which case we label it Extreme.
• 5 Star
• 4 Star
• 3 Star
• 2 Star
• 1 Star
Low
—

—
—
—
125%
105%
95%
80%
—
—
Medium
—
—
—
135%
110%
90%
70%
—
—

High
—
—
—
—
—
155%
115%
85%
60%
Very High *
175%
—
—
—
—
125%
80%

50%
Morningstar Research Methodology for Valuing Companies
3Medium: margin of safety for 5-star rating is a 30%
3High: margin of safety for 5-star rating is a 40%
3Very High: margin of safety for 5-star rating is a 50%
3Extreme: Stock’s uncertainty exceeds the parameters
we have set for assigning the appropriate margin of safety.
4. Market Price
The market prices used in this analysis and noted in the
report come from exchange on which the stock is listed
which we believe is a reliable source.
For more detail information about our methodology, please
go to http://global.morningstar.com/equitydisclosures
Morningstar Star Rating for Stocks
Once we determine the fair value estimate of a stock,
we compare it with the stock’s current market price on
a daily basis, and the star rating is automatically re-cal-
culated at the market close on every day the market on
which the stock is listed is open. Our analysts keep
close tabs on the companies they follow, and, based on
thorough and ongoing analysis, raise or lower their fair
value estimates as warranted.
Please note, there is no predefined distribution of stars.
That is, the percentage of stocks that earn 5 stars can
fluctuate daily, so the star ratings, in the aggregate,

can serve as a gauge of the broader market’s valuation.
When there are many 5-star stocks, the stock market as
a whole is more undervalued, in our opinion, than when
very few companies garner our highest rating.
We expect that if our base-case assumptions are true
the market price will converge on our fair value estimate
over time, generally within three years (although it is
impossible to predict the exact time frame in which
market prices may adjust).
Our star ratings are guideposts to a broad audience and
individuals must consider their own specific investment
goals, risk tolerance, tax situation, time horizon, in-
come needs, and complete investment portfolio, among
other factors.
The Morningstar Star Ratings for stocks are defined below:
Five Stars QQQQQ
We believe appreciation beyond a fair risk-adjusted re-
turn is highly likely over a multiyear time frame. Scenar-
io analysis developed by our analysts indicates that the
current market price represents an excessively pessi-
mistic outlook, limiting downside risk and maximizing
upside potential.
Four Stars QQQQ
We believe appreciation beyond a fair risk-adjusted re-
turn is likely.
Three Stars QQQ
Indicates our belief that investors are likely to receive a
fair risk-adjusted return (approximately cost of equity).

?
Two Stars QQ
We believe investors are likely to receive a less
than fair risk-adjusted return.

One Star Q
Indicates a high probability of undesirable risk-
adjusted returns from the current market price
over a multiyear time frame, based on our analy-
sis. Scenario analysis by our analysts indicates
that the market is pricing in an excessively opti-
mistic outlook, limiting upside potential and leav-
ing the investor exposed to Capital loss.
Other Definitions:
Last Price: Price of the stock as of the close of
the market of the last trading day before date of
the report.
Stewardship Rating: Represents our assessment
of management’s stewardship of shareholder
capital, with particular emphasis on capital allo-
cation decisions. Analysts consider companies’
investment strategy and valuation, financial le-
verage, dividend and share buyback policies, ex-
ecution, compensation, related party transac-
tions, and accounting practices. Corporate
governance practices are only considered if
they’ve had a demonstrated impact on share-
holder value. Analysts assign one of three rat-
ings: “Exemplary,” “Standard,” and “Poor.” Ana-
lysts judge stewardship from an equity holder’s
perspective. Ratings are determined on an abso-
lute basis. Most companies will receive a
Standard rating, and this is the default rating
in the absence of evidence that managers
have made exceptionally strong or poor capital
allocation decisions.
Quantitative Valuation: Using the below terms,

intended to denote the relationship between the
security’s Last Price and Morningstar’s quantita-
tive fair value estimate for that security.
3Undervalued: Last Price is below Morningstar’s
quantitative fair value estimate.
3Farily Valued: Last Price is in line with Morning-
star’s quantitative fair value estimate.
3Overvalued: Last Price is above Morningstar’s
Risk Warning
Please note that investments in securities are subject
to market and other risks and there is no assurance or
guarantee that the intended investment objectives will
be achieved. Past performance of a security may or may
not be sustained in future and is no indication of future
performance. A security investment return and an in-
vestor’s principal value will fluctuate so that, when re-
deemed, an investor’s shares may be worth more or
less than their original cost. A security’s current invest-
ment performance may be lower or higher than the in-
vestment performance noted within the report. Morn-
ingstar’s Uncertainty Rating serves as a useful data
point with respect to sensitivity analysis of the assump-
tions used in our determining a fair value price.
Quantitative Equity Reports Overview
The quantitative report on equities consists of data, sta-
tistics and quantitative equity ratings on equity securi-
ties. Morningstar, Inc.’s quantitative equity ratings are
forward looking and are generated by a statistical mod-
el that is based on Morningstar Inc.’s analyst-driven
equity ratings and quantitative statistics. Given the na-

ture of the quantitative report and the quantitative rat-
ings, there is no one analyst in which a given report is
attributed to; however, Mr. Lee Davidson, Head of
Quantitative Research for Morningstar, Inc., is respon-
sible for overseeing the methodology that supports the
quantitative equity ratings used in this report. As an
employee of Morningstar, Inc., Mr. Davidson is guided
by Morningstar, Inc.’s Code of Ethics and Personal Se-
curities Trading Policy in carrying out his responsibilities.
Quantitative Equity Ratings
Morningstar’s quantitative equity ratings consist of: (i)
Quantitative Fair Value Estimate, (ii) Quantitative Star
Rating, (iii) Quantitative Uncertainty, (iv) Quantitative
Economic Moat, and (v) Quantitative Financial Health
(collectively the “Quantitative Ratings).
The Quantitative Ratings are calculated daily and de-
rived from the analyst-driven ratings of a company’s
peers as determined by statistical algorithms. Morning-
star, Inc. (“Morningstar”, “we”, “our”) calculates Quan-
titative Ratings for companies whether or not it already
provides analyst ratings and qualitative coverage. In
some cases, the Quantitative Ratings may differ from
the analyst ratings because a company’s analyst-driven
ratings can significantly differ from other companies in
its peer group.
Quantitative Fair Value Estimate: Intended to represent
Morningstar’s estimate of the per share dollar amount
that a company’s equity is worth today. Morningstar
calculates the Quantitative Fair Value Estimate using a
statistical model derived from the Fair Value Estimate
Morningstar’s equity analysts assign to companies.
Please go to http://global.morningstar.com/equitydis-

closures for information about Fair Value Estimate
Morningstar’s equity analysts assign to companies.
Quantitative Economic Moat: Intended to describe the
strength of a firm’s competitive position. It is calculated
using an algorithm designed to predict the Economic
Moat rating a Morningstar analyst would assign to the
stock. The rating is expressed as Narrow, Wide, or None.
3Narrow: assigned when the probability of a stock receiv-
ing a “Wide Moat” rating by an analyst is greater than
70% but less than 99%.
3Wide: assigned when the probability of a stock receiving
a “Wide Moat” rating by an analyst is greater than 99%.
3None: assigned when the probability of an analyst receiv-
ing a “Wide Moat” rating by an analyst is less than 70%.
Quantitative Star Rating: Intended to be the summary
rating based on the combination of our Quantitative Fair
Value Estimate, current market price, and the Quantita-
tive Uncertainty Rating. The rating is expressed as One-
Star, Two-Star, Three-Star, Four-Star, and Five-Star.
3One-Star: the stock is overvalued with a reasonable mar-
gin of safety.
Log (Quant FVE/Price) < -1*Quantitative Uncertainty
3Two-Star: the stock is somewhat overvalued.
Log (Quant FVE/Price) between (-1*Quantitative
Uncertainty, -0.5*Quantitative Uncertainty)
3Three-Star: the stock is approximately fairly valued.
Log (Quant FVE/Price) between (-0.5*Quantitative
Uncertainty, 0.5*Quantitative Uncertainty)
3Four-Star: the stock is somewhat undervalued.
Log (Quant FVE/Price) between (0.5*Quantitative
Uncertainty, 1*Quantitative Uncertainty)
3Five-Star: the stock is undervalued with a reasonable

margin of safety.
Log (Quant FVE/Price) > 1*Quantitative Uncertainty
Quantitative Uncertainty: Intended to represent Morn-
ingstar’s level of uncertainty about the accuracy of the
Quantitative Fair Value Estimate. Generally, the lower
the Quantitative Uncertainty, the narrower the potential
range of outcomes for that particular company. The rat-
?

ing is expressed as Low, Medium, High, Very
High, and Extreme.
3Low: the interquartile range for possible fair val-
ues is less than 10%.
3Medium: the interquartile range for possible fair
values is less than 15% but greater than 10%.
3High: the interquartile range for possible fair val-
ues is less than 35% but greater than 15%.
3Very High: the interquartile range for possible fair
values is less than 80% but greater than 35%.
3Extreme: the interquartile range for possible fair
values is greater than 80%.
Quantitative Financial Health: Intended to reflect
the probability that a firm will face financial dis-
tress in the near future. The calculation uses a
predictive model designed to anticipate when
a company may default on its financial obliga-
tions. The rating is expressed as Weak, Moderate,
and Strong.
3Weak: assigned when Quantitative Financial
Health < 0.2
3Moderate: assigned when Quantitative Financial
Health is between 0.2 and 0.7
3Strong: assigned when Quantitative Financial
Health > 0.7
Other Definitions:

Last Close: Price of the stock as of the close of the mar-
ket of the last trading day before date of the report.
Quantitative Valuation: Using the below terms, intend-
ed to denote the relationship between the security’s
Last Price and Morningstar’s quantitative fair value es-
timate for that security.
3Undervalued: Last Price is below Morningstar’s quanti-
tative fair value estimate.
3Farily Valued: Last Price is in line with Morningstar’s
3Overvalued: Last Price is above Morningstar’s quantita-
tive fair value estimate.
This Report has not been made available to the issuer of
the security prior to publication.
Risk Warning
Please note that investments in securities are subject to
market and other risks and there is no assurance or
guarantee that the intended investment objectives will
be achieved. Past performance of a security may or may
not be sustained in future and is no indication of future
performance. A security investment return and an in-
vestor’s principal value will fluctuate so that, when re-
deemed, an investor’s shares may be worth more or less
than their original cost. A security’s current investment
performance may be lower or higher than the invest-
ment performance noted within the report.
The quantitative equity ratings are not statements of
fact. Morningstar does not guarantee the completeness
or accuracy of the assumptions or models used in deter-
mining the quantitative equity ratings. In addition,

there is the risk that the price target will not be met due
to such things as unforeseen changes in demand for the
company’s products, changes in management, technol-
ogy, economic development, interest rate development,
operating and/or material costs, competitive pressure,
supervisory law, exchange rate, and tax rate. For invest-
ments in foreign markets there are further risks, gener-
ally based on exchange rate changes or changes in po-
litical and social conditions. A change in the
fundamental factors underlying the quantitative equity
ratings can mean that the valuation is subsequently no
longer accurate.
For more information about Morningstar’s quantitative
methodology, please visit www.corporate.morningstar.com.
?

General Qualitative Disclosure
The analysis within this report is prepared by the person
(s) noted in their capacity as an analyst for Morningstar.
The opinions expressed within the report are given in
good faith, are as of the date of the report and are
subject to change without notice. Neither the analyst
nor Morningstar commits themselves in advance to
whether and in which intervals updates to the report
are expected to be made. The written analysis and
Morningstar Star Rating for stocks are statements of
opinions; they are not statements of fact.
Morningstar believes its analysts make a reasonable
effort to carefully research information contained in the
analysis. The information on which the analysis is based
has been obtained from sources which we believe to
be reliable such as, for example, the company’s financial
statements filed with a regulator, company website,
Bloomberg and any other the relevant press sources.
Only the information obtained from such sources is
made available to the issuer who is the subject of the
analysis, which is necessary to properly reconcile with
the facts. Should this sharing of information result in
considerable changes, a statement of that fact will be
noted within the report. While Morningstar has
obtained data, statistics and information from sources
it believes to be reliable, Morningstar does not perform
an audit or seek independent verification of any of the
data, statistics, and information it receives.
General Quantitative Disclosure
The Quantitative Equity Report (“Report”) is derived
from data, statistics and information within
Morningstar, Inc.’s database as of the date of the Report

and is subject to change without notice. The Report is
for informational purposes only, intended for financial
professionals and/or sophisticated investors (“Users”)
and should not be the sole piece of information used by
such Users or their clients in making an investment
decision. While Morningstar has obtained data,
statistics and information from sources it believes to be
reliable, Morningstar does not perform an audit or seeks
independent verification of any of the data, statistics,
and information it receives.
The quantitative equity ratings noted the Report are
provided in good faith, are as of the date of the Report
and are subject to change. While Morningstar has
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?
120
100

80
64
48
32
24
20
16
12
8
Percent
shares
traded
30
20
10
Target Price Range
2019 2020 2021
ORACLE NYSE-ORCL 38.46 14.7 14.614.0 0.81 1.6%
TIMELINESS 3 Lowered 9/11/15
SAFETY 1 Raised 5/22/09
TECHNICAL 3 Lowered 11/11/16
BETA 1.05 (1.00 = Market)
2019-21 PROJECTIONS
Ann’l Total
Price Gain Return
High 60 (+55%) 13%
Low 50 (+30%) 9%
Insider Decisions

D J F M A M J J A
to Buy 0 0 0 0 0 0 0 0 0
Options 4 1 2 4 2 1 6 7 2
to Sell 3 1 1 4 3 1 3 1 2
Institutional Decisions
4Q2015 1Q2016 2Q2016
to Buy 586 621 597
to Sell 760 745 741
Hld’s(000)245015124749762408086
High: 14.5 19.8 23.3 23.6 25.1 32.3 36.5 34.3 38.3 46.7 45.3
42.0
Low: 11.3 12.1 16.0 15.0 13.8 21.2 24.7 25.3 29.9 35.4 35.1
33.1
% TOT. RETURN 10/16
THIS VL ARITH.*
STOCK INDEX
1 yr. 0.5 6.4
3 yr. 19.5 15.7
5 yr. 24.4 76.0
CAPITAL STRUCTURE as of 8/31/16
Total Debt $54056 mill. Due in 5 Yrs $16150 mill.
LT Debt $53057 mill. LT Interest $1800 mill.
(53% of Cap’l)
Leases, Uncapitalized Annual rentals $328.0 mill.
No Defined Benefit Pension Plan
Pfd Stock None
Common Stock 4,105,567,000 shs.

as of 9/12/16
MARKET CAP: $158 billion (Large Cap)
CURRENT POSITION 2015 2016 8/31/16
($MILL.)
Cash Assets 54368 56125 68396
Receivables 5618 5385 3407
Inventories (FIFO) 314 212 286
Other 2883 2591 2362
Current Assets 63183 64313 74451
Accts Payable 806 504 551
Debt Due 1999 3750 999
Deferred Revenue 7245 7655 9462
Other 5241 5299 4130
Current Liab. 15291 17208 15142
ANNUAL RATES Past Past Est’d ’13-’15
of change (per sh) 10 Yrs. 5 Yrs. to ’19-’21
Sales 15.5% 12.0% 7.0%
‘‘Cash Flow’’ 17.5% 14.0% 6.5%
Earnings 18.0% 13.5% 6.0%
Dividends - - 39.0% 7.5%
Book Value 20.5% 15.0% 3.5%
Fiscal
Year
Ends
Full
Fiscal
Year
QUARTERLY SALES ($ mill.)A
Aug.Per Nov.Per Feb.Per May.Per

2013 8209 9113 8970 10961 37253
2014 8381 9283 9315 11326 38305
2015 8599 9608 9334 10712 38253
2016 8452 8996 9014 10594 37056
2017 8613 9150 9250 10487 37500
Fiscal
Year
Ends
Full
Fiscal
Year
EARNINGS PER SHARE AB
Aug.Per Nov.Per Feb.Per May.Per
2013 .53 .64 .65 .87 2.68
2014 .59 .69 .68 .92 2.87
2015 .62 .69 .68 .78 2.77
2016 .53 .63 .64 .81 2.61
2017 .55 .61 .65 .82 2.63
Cal- Full
endar Year
QUARTERLY DIVIDENDS PAID E
Mar.31 Jun.30 Sep.30 Dec.31
2012 .06 .06 .06 .24 .42
2013 - - - - .12 .12 .24
2014 .12 .12 .12 .12 .48
2015 .12 .15 .15 .15 .57
2016 .15 .15 .15 .15
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
2011 2012 2013
1.80 1.94 1.78 1.81 1.96 2.36 2.82 3.57 4.39 4.69 5.38 7.07 7.59

8.02
.44 .52 .48 .50 .56 .73 .85 1.09 1.37 1.53 1.75 2.32 2.65 2.91
.35 .46 .39 .43 .50 .68 .80 1.01 1.30 1.44 1.67 2.22 2.46 2.68
- - - - - - - - - - - - - - - - - - .05 .20 .20 .24 .30
.05 .06 .05 .06 .04 .04 .05 .06 .05 .11 .05 .09 .13 .14
1.15 1.12 1.13 1.21 1.55 2.11 2.87 3.31 4.47 5.01 6.13 7.85 8.91
9.61
5615.1 5592.4 5431.0 5233.0 5171.0 5145.0 5232.0 5107.0
5150.0 5005.0 5026.0 5068.0 4905.0 4646.0
NMF NMF 36.8 24.6 25.1 17.9 16.3 17.0 15.8 13.1 13.7 13.0
12.0 12.0
NMF NMF 2.01 1.40 1.33 .95 .88 .90 .95 .87 .87 .82 .76 .67
- - - - - - - - - - - - - - - - - - .3% .9% .7% .8% .9%
14771 18208 22609 23495 27034 35850 37221 37253
41.9% 42.1% 43.9% 47.3% 47.2% 45.3% 47.5% 48.7%
223.0 249.0 268.0 263.0 298.0 368.0 486.0 546.0
4246.0 5295.0 6799.0 7393.0 8494.0 11395 12520 12958
29.7% 28.6% 29.5% 28.7% 27.1% 25.3% 24.0% 23.0%
28.7% 29.1% 30.1% 31.5% 31.4% 31.8% 33.6% 34.8%
5044.0 3496.0 8074.0 9432.0 12313 24982 24635 28820
5735.0 6235.0 10235 9237.0 11510 14772 13524 18494
15012 16919 23025 25090 30798 39776 43688 44648
20.9% 23.6% 21.0% 22.3% 21.0% 21.6% 22.6% 21.2%
28.3% 31.3% 29.5% 29.5% 27.6% 28.6% 28.7% 29.0%
28.3% 31.3% 29.5% 28.5% 24.3% 26.0% 25.9% 25.8%
- - - - - - 3% 12% 9% 10% 11%
2014 2015 2016 2017 © VALUE LINE PUB. LLC 19-21
8.58 8.81 8.97 9.50 Sales per sh A 12.30
3.10 3.04 2.93 3.20 ‘‘Cash Flow’’ per sh 4.15

2.87 2.77 2.61 2.63 Earnings per sh AB 3.65
.48 .51 .60 .64 Div’ds Decl’d per sh E .76
.13 .32 .29 .25 Cap’l Spending per sh .25
10.50 11.21 11.45 11.65 Book Value per sh D 13.10
4464.0 4343.0 4131.0 3950.0 Common Shs Outst’g C 3450.0
12.5 15.1 14.8 Avg Ann’l P/E Ratio 15.0
.66 .77 .78 Relative P/E Ratio .94
1.3% 1.2% 1.6% Avg Ann’l Div’d Yield 1.4%
38305 38253 37056 37500 Sales ($mill) A 42500
48.9% 47.3% 44.9% 45.5% Operating Margin 47.0%
608.0 712.0 871.0 900 Depreciation ($mill) 1000
13214 12489 11236 11785 Net Profit ($mill) 13375
22.5% 23.6% 23.2% 25.5% Income Tax Rate 24.0%
34.5% 32.6% 30.3% 31.4% Net Profit Margin 31.5%
33749 47892 47105 50000 Working Cap’l ($mill) 50000
22667 39959 40105 53000 Long-Term Debt ($mill) 53000
46878 48663 47289 46000 Shr. Equity ($mill) 45250
19.7% 14.7% 13.7% 13.0% Return on Total Cap’l 14.5%
28.2% 25.7% 23.8% 25.5% Return on Shr. Equity 29.5%
23.5% 21.0% 18.3% 20.0% Retained to Com Eq 23.5%
16% 18% 23% 22% All Div’ds to Net Prof 20%
Company’s Financial Strength A++
Stock’s Price Stability 75
Price Growth Persistence 70
Earnings Predictability 85
(A) Fiscal year ends May 31st.
(B) Diluted earnings. Excl. nonrec. items:
’00, 70¢; ’05, d13¢; ’06, d12¢; ’07, d20¢;
’08, d24¢; ’09, d35¢; ’10, d46¢; ’11, d55¢;

’12, d50¢; ’13, d60¢; ’14, d49¢; ’15, d56¢;
’16, d54¢. Next earnings report due mid-Dec.
(C) In millions. (D) Incl. intang. In 2016, $34.6
bill., $8.38 a share.
(E) Initial div’d paid May 8, 2009. Div’ds paid
late January, April, July, and October. Div’ds
($0.06 ea.) for February, May, and August of
CY2013 were paid in December, 2012.
BUSINESS: Oracle Corporation develops, manufactures,
markets,
distributes, and services database and middleware software,
app-
lications software, and hardware systems, primariy consisting of
computer server and storage products. 2016 revenue breakdown:
new software licenses, 19.6%; cloud SaaS, PaaS, & IaaS, 7.7%;
software license updates and product support, 50.9%; hardware
systems & support, 12.6%; services, 9.2%; foreign sales, 53.4%.
R&D, 15.6% of 2016 sales. Employed 136,000 at 5/31/16. Stock
owners: Lawrence J. Ellison, 28%; other off. & dir., 1% (9/16
proxy).
Exec Chrmn & CTO: Lawrence J. Ellison; Co-CEOs: Safra A.
Catz
and Mark V. Hurd. Inc.: DE. Addr.: 500 Oracle Parkway,
Redwood
City, CA 94065. Tel.: 650-506-7000. Internet: www.oracle.com.
Oracle Corporation began fiscal 2017
with mixed financial results. (Years
end May 31st.) The company continued to
register strong growth in cloud services,
with its software-as-a-service (SaaS) and
platform-as-a-service (PaaS) offerings

remaining on a rapid advance. Nonethe-
less, revenue from new software licenses
once again found progress elusive, as large
enterprises continue to work their way to
finding a balance between their on-
premise requirements and the advantages
afforded by cloud architecture. That said,
overall software revenues advanced mod-
erately, benefiting from the combination of
progress at license updates and support
and the strength in cloud services. Finally,
although the margin widened in the
hardware business, profits declined.
We have made adjustments to our es-
timates for fiscal 2017. Although SaaS
and PaaS should remain on a steep trajec-
tory, growth in overall software revenue
may well turn out to be more modest than
earlier anticipated, reflecting the likely
decline in new software licenses and slow-
ing progress in software updates and sup-
port. Accordingly, despite the steep ascent
of Oracle’s cloud offerings, our revenue call
is now $37.5 billion, down $500 million.
Meanwhile, we have also reduced our
earnings target, with our non-GAAP es-
timate now at $2.63 a share, versus the
previous $2.83. When completed, the ac-
quisition of NetSuite should be accretive.
The transition to cloud computing
remains front and center at Oracle.
Billings for cloud offerings SaaS and PaaS
are advancing rapidly, with profit margins
widening on a sequential basis. In addi-
tion, Oracle will be placing more emphasis

on its infrastructure-as-a-service (IaaS)
business, leveraging the offering with its
strong position in the enterprise database
arena and the services that can be pro-
vided as a result. Amazon Web Services
and Microsoft are keen competitors in this
arena, and both are also trying to estab-
lish some level of differentiation in what is
basically a commodity-type business. Add-
ing it all up, Oracle should prosper as the
secular move to cloud architecture and
computing unfolds. Accordingly, these
shares should provide respectable risk-
adjusted returns for patient accounts.
Charles Clark November 11, 2016
LEGENDS
13.0 x ″Cash Flow″ p sh
. . . . Relative Price Strength
Options: Yes
Shaded area indicates recession
© 2016 Value Line, Inc. All rights reserved. Factual material is
obtained from sources believed to be reliable and is provided
without warranties of any kind.
THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS
OR OMISSIONS HEREIN. This publication is strictly for
subscriber’s own, non-commercial, internal use. No part
of it may be reproduced, resold, stored or transmitted in any
printed, electronic or other form, or used for generating or
marketing any printed or electronic publication, service or
product.
To subscribe call 1-800-VALUELINE

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