Net Present Value (NPV) is a method used to estimate the value of a company by forecasting its future net income, adding a terminal value to represent its worth beyond the forecast period, and discounting these amounts back to the present. This approach helps investors determine whether a company’s current market price aligns with its projected financial performance.
Oracle: Table of 10 Years’ Future Revenues, Future Net Income and Net Present Value
| Year Ending | Years Later |
Revenue Growth Rate |
Revenue | Profit Margin | Net Income | NPV |
| 12/23/2025 | 1 | 10% | $60,426 | 20% | $12,085 | $10,987 |
| 12/23/2026 | 2 | 10% | $66,469 | 20% | $13,294 | $10,987 |
| 12/23/2027 | 3 | 10% | $73,116 | 20% | $14,623 | $10,987 |
| 12/23/2028 | 4 | 8% | $78,965 | 15% | $11,845 | $8,090 |
| 12/23/2029 | 5 | 8% | $85,282 | 15% | $12,792 | $7,943 |
| 12/23/2030 | 6 | 8% | $92,105 | 15% | $13,816 | $7,799 |
| 12/23/2031 | 7 | 5% | $96,710 | 10% | $9,671 | $4,963 |
| 12/23/2032 | 8 | 5% | $101,546 | 10% | $10,155 | $4,737 |
| 12/23/2033 | 9 | 5% | $106,623 | 10% | $10,662 | $4,522 |
| 12/23/2034 | 10 | 5% | $111,954 | 10% | $11,195 | $4,316 |
| 10-Year Total | $873,196 | $120,138 | $75,330 |
| Gross Value | NPV | ||||
| Total of 10 Years’ Earnings | $120,138 | $75,330 | Current Market Cap | $471,175 | |
| Terminal Value | $224,000 | $86,362 | Net Present Value | $161,691 | |
| Total Value of NVIDIA | $344,138 | $161,691 | Rate of Return | -65.7% |
What is Oracle (ORCL) Worth to an Investor Today?
Let’s explore Oracle (ORCL) through the lens of NPV. What could Oracle be worth to an investor right now? Using a model designed to compute the potential net present value of Oracle—or any company—based on assumptions about future revenues and profit margins, we aim to provide valuable insights. While projecting a company’s future revenues and profit margins is no easy task, investment advisors must make decisions rooted in well-informed estimates. At ERS, our expertise in data science equips you with the tools and support needed to navigate this challenging process.
The numbers in this example are simply illustrative and were chosen to show how the model works. We’re not making any predictions about Oracle’s future revenues or profit margins.
In this example, we made the following assumptions about Oracle’s future financials:
- Revenue Growth:
- 10% per year in years 1-3
- 8% per year in years 4-6
- 5% per year in years 7-10
- Profit Margins:
- 20% in years 1-3
- 15% in years 4-6
- 10% in years 7-10
- Terminal Value: $224 billion, based on doubling Year 10 revenue
- Discount Rate: 10%.
The accompanying table shows Oracle’s projected revenues and net income for the next 10 years. The gross value of Oracle’s income over the decade is $120 billion, and the NPV of this income, combined with the terminal value, totals approximately $162 billion. However, Oracle’s current market capitalization is $470 billion, nearly three times its calculated NPV.
What Does This Say About Oracle’s Current Valuation?
This analysis suggests a rate of return of -65.7%, highlighting a significant gap between Oracle’s current market cap and its intrinsic value based on these projections. Investors should carefully consider the implications: Is there a realistic path for Oracle’s future growth and profitability to justify its current valuation? Or does this highlight the risk of limited upside—or even loss—for those buying or holding Oracle stock today?
This is a question every prudent investor should ask when evaluating whether to invest in Oracle or any other stock.
On 12/6/2024, Oracle had a market cap of $536 billion.
Below are 12 companies that had a combined market cap of $539 billion on 12/6/2024:
| Symbol | Company | Market Cap | Revenue (TTM) |
Net Income (TTM) |
Dividends (TTM) |
Financial Leverage |
| AEP | American Electric Power | $51,046 | $19,602 | $2,639 | $1,874 | 1.64 |
| ED | Consolidated Edison | $32,847 | $15,036 | $1,844 | $1,091 | 1.18 |
| CVS | CVS Health | $69,577 | $368,912 | $5,016 | $3,314 | 0.87 |
| F | Ford Motor | $41,770 | $182,743 | $3,529 | $3,123 | 3.55 |
| GIS | General Mills | $35,927 | $19,901 | $2,603 | $1,348 | 1.58 |
| HSY | Hershey | $35,351 | $10,972 | $1,774 | $1,052 | 1.26 |
| HPQ | HP Inc | $33,948 | $53,559 | $2,775 | $1,075 | -7.31 |
| KMB | Kimberly-Clark | $44,930 | $20,100 | $2,607 | $1,619 | 6.11 |
| KHC | Kraft Heinz | $37,255 | $26,130 | $1,370 | $1,943 | 0.42 |
| PSX | Phillips 66 | $53,143 | $147,738 | $3,369 | $1,867 | 0.70 |
| PRU | Prudential Financial | $45,047 | $73,272 | $4,101 | $1,879 | 0.78 |
| PSA | Public Storage | $58,486 | $4,678 | $1,897 | $2,303 | 1.80 |
| Total | $539,328 | $942,643 | $33,524 | $22,488 |
| 12/6/2024 | Price to Sales |
Price to Earnings |
Financial Leverage | Dividend Yield |
| Oracle | 9.76 | 46.1 | 6.45 | 0.8% |
| 12 Alternative Companies | 0.57 | 16.1 | 1.05 | 4.2% |
You could have bought shares of Oracle, or spread that capital among these 12 companies.
Notice the difference in financial risk and valuation metrics.
For further information, contact me at Equity Risk Sciences:
Raymond Mullaney, CEO ray@ers.ai