Oracle Reaps Rewards: Analysts Cite SAP's Cloud Migration Struggles As Boon, Reaffirm Stock Buy Rating

Mizuho analyst Siti Panigrahi reiterates a Buy rating on Oracle Corp ORCL with a price target of $116.00.
The analyst recently came across a report on users slamming SAP SE's SAP public cloud and S/4HANA migration strategy, highlighting that SAP is facing criticism from its user group, DSAG, for having an unclear plan with its S/4HANA enterprise resource planning (ERP) software.
With SAP publicly pushing its on-premise customers to migrate to its cloud offering, DSAG published a letter noting its frustration with SAP's strategy of driving customers to an under-developed cloud version that fails to offer the same features and functionalities of the on-prem version.
To provide context, SAP released S/4HANA in 2015 as the successor to its famous on-premise SAP ERP Central Component (ECC).
Despite SAP's push for customers to switch over, only 32% have moved (according to Gartner), as S/4HANA has yet to offer feature parity with ECC.
And with SAP now pushing ECC and S/4HANA customers to migrate to the cloud, customer resistance may have grown, as evidenced by the DSAG letter.
The analyst expects heightened customer churn within the SAP base as SAP forces customers to migrate to S/4HANA. Typically, such migrations require organizations to initiate an RFP process, which opens the door to competitors.
Panigrahi reminds investors that SAP is the market leader in on-premise ERP/ enterprise applications (with 30K+ customers), followed by Oracle.
However, Oracle has successfully transitioned its ERP product to Fusion cloud applications, categorized as the only "Leader" in Gartner's Magic Quadrant for Cloud ERP for Product-Centric Enterprises given the broad set of capabilities of its Fusion offering (Oracle was the highest-rated vendor in categories such as a vision for product strategy and geographic strategy).
And with its broad product portfolio (integrated Oracle Fusion applications that include ERP, EPM, SCM, HCM) and underlying infrastructure (via OCI), the analyst believes Oracle may 1) be attractive to existing SAP ERP customers and 2) become more competitive in RFP processes as prospects become wary of SAP (with its multiple strategy changes over the last few years).
Overall, the analyst believes that SAP's lack of clear strategy for its ERP applications might help Oracle gain share as on-premise customers evaluate their approach to migrating to the cloud.
Price Action: ORCL shares traded lower by 1.35% at $94.24 on the last check Monday.

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