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MarketScreener Homepage  >  Equities  >  Nyse  >  Oracle Corporation    ORCL

ORACLE CORPORATION

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Oracle Deal With TikTok to Undergo U.S. National Security Review

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09/14/2020 | 12:52pm EDT

By Aaron Tilley

The Treasury Department said it would review a deal by Oracle Corp. for TikTok's U.S. operations aimed at avoiding a ban of the popular video-sharing app because of its Chinese ownership.

Business software provider Oracle on Monday said it was part of the proposal submitted by TikTok's Chinese parent ByteDance Ltd. to the U.S. government in which the American tech company would "serve as the trusted technology provider." It beat out Microsoft Corp. to work with TikTok to address Trump administration concerns that the popular video-sharing app's ownership by a Chinese company posed a national security risk, people familiar with the situation said Sunday.

President Trump was pushing for a sale of TikTok's U.S. business and has said, absent a deal, those operations would be shut down.

Treasury Secretary Steven Mnuchin on Monday confirmed that his office received a bid proposal from Oracle for TikTok's operations over the weekend and said that the Treasury-led Committee on Foreign Investment in the U.S. would review it this week. "We will be reviewing that at the Cfius committee this week and then will be making a recommendation to the president and reviewing it with him," Mr. Mnuchin said on CNBC. Presidents have the power to overrule Cfius recommendations to either clear or block a deal.

Details of the Oracle arrangement with TikTok weren't immediately disclosed, but it is expected to involve moving TikTok's data on American users to Oracle's cloud-computing infrastructure and housing that information only in the U.S. Oracle is joining with some of ByteDance's U.S. investors, and Walmart Inc., which had been working with Microsoft, suggested late Sunday that it is considering joining the Oracle group, according to the people.

For Oracle, the arrangement could give a jolt to the Silicon Valley stalwart's efforts to transform its staid database business into a major player in cloud computing -- if the companies can secure government approval for the plan.

The principal attraction of a TikTok deal is adding a flagship customer to its cloud, people familiar with the arrangement said. TikTok is a globally recognized client and comes with a coveted user base for Chairman Larry Ellison as he seeks to accelerate the shift of the Redwood City, Calif.-based company he founded into a force in cloud computing, one of the most dynamic areas of tech.

Oracle currently lags far behind cloud leaders including Amazon.com Inc. and Microsoft. It mainly provides enterprise customers software to help run their business.

TikTok has soared to around 100 million monthly users in the U.S., from about 11 million in early 2018, and they are considered among the most lucrative in the app's global user base of about 689 million.

Working with TikTok would burnish Oracle's cloud credentials, in part because the video-heavy nature of the app makes it an especially demanding user, said Ray Wang, founder of the Silicon Valley-based advisory firm Constellation Research Inc. "Oracle is showing it can run the toughest workloads in the public cloud and that's what it's going after," said Mr. Wang. "Video requires a stable and massively elastic cloud."

Oracle for decades has worked with the U.S. government, including the national security establishment, and it is politically well connected. In its announcement Monday, Oracle said it "has a 40-year track record providing secure, highly performant technology solutions."

Mr. Ellison, also Oracle's co-founder and largest shareholder, earlier this year threw a fundraiser at his home for the president. Chief Executive Safra Catz also worked on the executive committee for the Trump transition team in 2016 and has donated to his re-election campaign.

President Trump in mid-August voiced support for Oracle's involvement in a TikTok deal. "Well I think Oracle is a great company and I think its owner is a tremendous guy, a tremendous person. I think that Oracle would be certainly somebody that could handle it," the president said when asked about Oracle's potential interest.

If it goes through, the TikTok deal would mark the second time during the pandemic Oracle has won as a customer one of the biggest winners from the sheltering-at-home era. Oracle this year became a cloud provider to Zoom Video Communications Inc., when the videoconferencing app that has seen use surge needed more capacity to handle the growth in demand with people working from home and students learning remotely.

Oracle's effort to gain ground on cloud market share from Amazon and Microsoft has started to show results. Growth in its cloud business helped Oracle deliver earnings in the most recent quarter that beat Wall Street's expectations. Oracle called out the Zoom business for fueling growth even as overall sales advanced modestly.

Soon after landing Zoom as a customer, Oracle also won another videoconferencing provider, called 8x8 Inc., as a cloud customer. 8x8 said it was able to significantly cut its cloud costs with the shift and saw improved performance. "It's been a very fruitful partnership," Mehdi Salour, senior vice president of 8x8's global networks said in an interview.

In its TikTok pursuit, Oracle joined forces with General Atlantic, Sequoia Capital and Coatue Management LLC, major investors in TikTok's Chinese parent company, and all hold seats on ByteDance's board. The firms urged Oracle to join the bidding for TikTok, people familiar with the matter have said, to find an alternative buyer to Microsoft, which was seen as front-runner for the purchase.

The TikTok deal isn't without risk. The arrangement will be subjected to a U.S. government national security review, the people said, and could draw scrutiny in China. Both governments have disrupted negotiations over TikTok's fate in recent weeks, including a decision by China late last month to impose export restrictions on the kind of artificial intelligence algorithms that underpin TikTok.

Some Trump administration officials and members of Congress have expressed concerns about allowing the app to continue to operate in the U.S. as long as it has ties to China.

China's state broadcaster reported on Monday that Beijing-based ByteDance wouldn't sell TikTok's U.S. operations to Microsoft or Oracle, citing anonymous sources. The company would also not sell TikTok's source code to any U.S. buyers, it said.

A person close to the TikTok talks said a deal that doesn't involve buying the suggestion algorithms that are considered the app's secret sauce would be hard to sell to U.S. national security officials.

Mr. Ellison and Ms. Catz are also plunging Oracle into a social-media market that is increasingly contested. Earlier this month Facebook Inc.'s Instagram launched Reels, its own version of a TikTok-like short video-feature.

--Liza Lin contributed to this article.

Write to Aaron Tilley at aaron.tilley@wsj.com

 


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Financials (USD)
Sales 2021 39 859 M - -
Net income 2021 10 204 M - -
Net Debt 2021 30 599 M - -
P/E ratio 2021 16,9x
Yield 2021 1,72%
Capitalization 169 B 169 B -
EV / Sales 2021 5,00x
EV / Sales 2022 4,81x
Nbr of Employees 135 000
Free-Float 61,9%
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Mean consensus HOLD
Number of Analysts 29
Average target price 61,63 $
Last Close Price 56,02 $
Spread / Highest target 25,0%
Spread / Average Target 10,0%
Spread / Lowest Target -19,7%
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Managers
NameTitle
Safra Ada Catz Chief Executive Officer & Director
Lawrence Joseph Ellison Chairman & Chief Technology Officer
Michael J. Boskin Independent Director
Jeffrey O. Henley Vice Chairman
Jeffrey S. Berg Independent Director
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