Oracle Corporation (ORCL) in Redwood City, Calif., and Snowflake, Inc. (SNOW) in San Mateo, Calif., are two prominent players in the software industry. ORCL provides products and services that address enterprise information technology (IT) environments. The company offers databases and relational servers, application development and decision support tools, and enterprise business applications. In comparison, SNOW provides a cloud-based data platform that enables customers to consolidate data into a single source to drive business insights, build data-driven applications and share data.

Ongoing digital transformation in almost every industry and the rising adoption of advanced cloud-based software platforms to facilitate remote working—as several parts of the world witnesses a resurgence of COVID-19 cases fueled by the virus’ Delta variant—should drive software companies' sales.  The global software industry market is expected to grow at a 7.2% CAGR from 2021 - 2026. So, both ORCL and SNOW should benefit.

But while SNOW's shares have gained 2.9% in price over the past six months, ORCL has surged 36.9%. In terms of their past nine months’ performance, ORCL is a clear winner with 53.8% gains versus SNOW’s negative returns. But which of these stocks is a better pick now? Let’s find out.

Click here to check out our Software Industry Report for 2021

Latest Developments

This month, ORCL announced the availability of MySQL Autopilot, which uses advanced machine learning techniques to automate MySQL HeatWave service, the in-memory query acceleration engine in Oracle Cloud Infrastructure (OCI), thus further improving performance and scalability. The company says MySQL HeatWave can now deliver 35X better price/performance than Snowflake (SNOW) and 13X better than Amazon’s (AMZN) Amazon Redshift with AQUA on an industry-standard TPC-H benchmark. Consequently, ORCL expects to gain widespread recognition across the industry.

On July 14, 2021, SNOW announced Unified ID 2.0 to help organizations easily enrich audience data without sharing consumers’ personally identifiable information (PII). With Unified ID 2.0 support, SNOW’s customers should  be able to optimize their data-first advertising strategies by directly activating audiences on any platform that has adopted Unified ID 2.0. SNOW is looking forward to continuing to solve the key challenges for the advertising industry.

Recent Financial Results

ORCL’s total revenues for its fiscal fourth quarter, ended May 31, 2021, increased 3.6% year-over-year to $40.48 billion. The company’s operating income came in at $19 billion, up 9.3% from the prior-year period. ORCL’s non-GAAP net income has been reported as $14.13 billion for the quarter, representing an 11.4% year-over-year improvement. Its non-GAAP EPS increased 21.3% year-over-year to $4.67. As of May 31, 2021, the company had $30.10 billion in cash and cash equivalents.

For its fiscal first quarter, ended April 30, 2021, SNOW’s revenues increased 110.4% year-over-year to $228.91 million. The company’s operating loss came in at $35.81 million, down 50.6% from the prior-year period. SNOW’s net loss has been reported at $203.22 million for the quarter, up 117% from the prior-year period. Its loss per share came in at $0.70, representing a 59.3% rise from the year-ago period. The company had $644.67 million in cash and marketable securities as of April 30, 2021.

Expected Financial Performance

Analysts expect ORCL’s revenue to increase 4.4% year-over-year in the current quarter, ending August 31, 2021, 4.3% in the current year, and 4.2% next year. Its EPS is expected to grow 4.1% year-over-year in the current quarter, decline 1.3% in the current year, and increase 10.9% next year.

SNOW’s revenue increased 83.1% year-over-year in the current quarter, ending October 31, 2021, 88.4% year-over-year in the current year, and 64% next year. Its EPS is expected to remain negative in the coming quarters of the current year and next year.

Profitability

ORCL’s trailing-12-month revenue is almost 56.8 times SNOW’s. ORCL is also more profitable, with an 80.6% gross profit margin versus SNOW’s 58.2%.

Also, ORCL’s ROE, ROA and ROTC values of 147.3%, 7.9%, and 11%, respectively, compare with SNOW’s  negative values.

Valuation

In terms of non-GAAP forward P/E, ORCL is currently trading at 19.21x, compared to SNOW’s negative  486.31x.

In terms of forward EV/Sales, SNOW’s 68.98x is 904.1% higher than ORCL’s 6.87x.

POWR Ratings

While SNOW has an overall F grade, which translates to Strong Sell in our proprietary POWR Ratings system, ORCL has an overall B grade, equating to Buy. The POWR Ratings are calculated considering 118 different factors, each weighted to an optimal degree.

ORCL has a B grade for Value, which is consistent with its lower-than-industry valuation ratios. ORCL’s 17.80x forward Price/Cash Flow is 20.7% lower than the 22.45x industry average. However, SNOW’s F grade for Value reflects its extreme overvaluation. The company has a 1795.37x forward Price/Cash Flow, which is 7898.4% higher than the 22.45x industry average.

In terms of Quality, ORCL has been graded a B, which is in sync with its higher-than-industry profitability ratios. ORCL’s 158.8% trailing-12-month ROE is 811.5% higher than the 8.3% industry average. However, SNOW’s D grade for Quality is in sync with its negative trailing-12-month ROE value.

Of the 144 stocks in the Software - Application industry, ORCL is ranked #6. In comparison,  SNOW is ranked #72 of 73 stocks in the Technology - Services industry.

Beyond what we’ve stated above, our POWR Ratings system has also rated SNOW and ORCL for Growth, Sentiment, Momentum, and Stability. Get all SNOW ratings here. Also, click here to see the additional POWR Ratings for ORCL.

The Winner

Based on the latest developments and expanded market reach, we think ORCL and SNOW should benefit from the industry tailwinds in the coming months. However, higher profitability and lower valuation make ORCL a better buy now.

Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Technology - Services industry, and here for those in the Software - Application industry.

Click here to check out our Software Industry Report for 2021

ORCL shares were unchanged in after-hours trading Wednesday. Year-to-date, ORCL has gained 38.62%, versus a 20.86% rise in the benchmark S&P 500 index during the same period.

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.

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