The two industry stalwarts will take a 20% stake in the newly formed TikTok Global of which Oracle will own 12.5% and Walmart the remaining 7.5%. The Chinese social app will also become an Oracle Cloud Infrastructure (OCI) customer.
While the deal is still pending approval by the Chinese government and until it is officially signed off could offer more twists and turns, Needham analyst Jack Andrews argues it could be more valuable to Oracle as a catalyst rather than a significant revenue generator.
“While it is difficult to gauge the ultimate financial gain as a result of the investment, our previous work estimated a more modest revenue impact from hosting fees for OCI,” the 5-star analyst said. “Nonetheless, we believe the addition of yet another marquee cloud reference customer may help further momentum with large enterprises.”
To calculate the TikTok deal’s potential revenue impact, Andrews uses the cloud hosting costs for SnapChat’s (SNAP) DAUs (daily average users) as a reference.
“If the underlying costs to serve temporary pictures is comparable to videos, we believe the partnership’s contribution from hosting fees may represent an opportunity of ~$35 million per quarter (or annualized at 0.4% of FY21E revenue),” the analyst explained.
Taking into consideration TikTok’s accelerating growth, Andrews anticipates the app could attain the same amount of DAUs as Facebook (FB) and provide a revenue stream for OCI of roughly $138 million per quarter (1.4% of FY21E revenue).
“Thus,” Andrew concludes, “Although we expect the financial impact to ORCL to be fairly modest, we note recent gains in marquee reference customers, like Zoom (ZM), may facilitate sustained growth in new enterprise customers to OCI.”
Sentiment toward Oracle remains mixed on Wall Street. Based on 8 Buys, 11 Holds and 1 Sell, the stock has a Moderate Buy consensus rating. Over the next 12 months, the analysts expect shares to remain within their current trading range as indicated by the $61.69 average price target. (See Oracle stock-price forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
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