- Warren Buffett bought a $US2.1 billion stake in Oracle – and dumped it a quarter later.
- On Monday, he explained why in an interview with CNBC’s Squawk Box.
- While Buffett complemented Oracle founder Larry Ellison and said it was a great company, he expressed confusion over Oracle’s all-important cloud business.
- And he confirmed that he didn’t want to repeat his experience with IBM.
In late 2018, Warren Buffett’s Berkshire Hathaway bought a $US2.1 billion stake in Oracle, which looked like a big vote of confidence in the database giant as it attempts to remake itself into a cloud computing company.
The Oracle of Omaha doesn’t tend to invest in a lot of tech stocks, making this all the more significant.
But then Buffett did something even rarer: he immediate bailed on Oracle, selling its stake off within months of buying it in the first place, Berkshire Hathaway disclosed this month when Oracle vanished from its list of stocks.
The industry gossip that when Buffett took a closer look at Oracle, he had negative flashbacks to his experience with IBM, which is also chasing the cloud. Buffett was an investor and a vocal fan of IBM for a while. But as the company shrank quarter after quarter, and the stock stagnated, his stake in IBM was widely considered to be a blemish on Buffett’s investing track record, until he ditched the company completely a year ago.
“[Cofounder and CTO] Larry Ellison’s done a fantastic job with Oracle. I mean I’ve followed it from the standpoint of reading about it. But I felt like I didn’t understand the business,”
“Then, after I started buying it, I felt I still didn’t understand the business. I actually changed my mind in terms of understand and not in terms of evaluating it. I think, I mean, Oracle is a great business. But I don’t think, particularly after my experience with IBM, I don’t think I understand exactly where the cloud is going.
“You know, I’ve been amazed at what Amazon has done there. And now Microsoft is doing it as well. So I don’t know where that game is going.”
No one can be surprised that Buffett felt like he couldn’t understand Oracle’s cloud business.
Oracle remains a giant in its bread-and-butter businesses – specifically, databases and enterprise software applications. But those businesses are mature, with little room for growth. Most of the growth in enterprise software is coming from cloud computing, where companies rent software and storage and servers from an IT company, instead of buying and maintaining it all themselves. As Buffett indicates, Amazon Web Services is considered the leader in cloud services, with Microsoft Azure in a strong second place.
By some estimates, only about one-third of corporate IT needs are in the cloud today, and 80% of them will be moved to the cloud by 2020.
Oracle must claim a good chunk of this new market, or watch its customers launch their new products and businesses on its competitors’ software, hosted on its competitors’ cloud.
Oracle has been saying that its young cloud business is going gangbusters. But in the middle of 2018, Oracle stopped reporting cloud revenues, in a move that hides the business’s health from public view. Its reporting structure now blends cloud revenue with traditional software sales. Oracle attributed the change to new accounting standards.
Meanwhile, insiders previously told Business Insider that some of Oracle’s salespeople had at one point been gaming the system by adding cloud credits to customer contracts even when customers had no intention of using Oracle’s cloud. Those sales methods were banned, as we reported.
Then at year’s end, Oracle said that Thomas Kurian, the long-time executive in charge of its cloud, had taken a leave of absence and was expected back at his post. But Kurian didn’t come back. He took a job running Google’s cloud instead.
Meanwhile, Buffett – wary from IBM, as he says – got out.
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