Oracle’s Value Proposition: Peer Comparison
Oracle’s scale in the software space
Earlier in this series, we discussed Oracle’s (ORCL) recently announced acquisitions in the cloud space. In this part, we’ll compare the value proposition of the company and other software companies in the United States.
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As of May 4, 2016, and as the above chart shows, Microsoft (MSFT) was the world’s largest software player by market capitalization. It was followed by Oracle. Red Hat (RHT), ServiceNow (NOW), and Tableau Software (DATA) are some other leading players in the systems software space.
Oracle’s valuation multiples
Let’s look at Oracle’s EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple. We’ll also look at other US software players’ multiples.
Oracle was trading at a forward EV-to-EBITDA multiple of ~9.1x on May 4, 2016. This metric was lower than Microsoft’s multiple of ~9.3x. Red Hat’s and ServiceNow’s multiples stood at ~16.3x and 29.1x, respectively.
Oracle’s dividend yield
Oracle’s forward annual dividend yield was ~3.5% on May 4, 2016. This was higher than Microsoft’s forward dividend yield of ~2.7% on May 3, 2016. ServiceNow and Tableau Software don’t pay dividends.
Investors who want to gain exposure to Oracle could consider investing in the Technology Select Sector SPDR ETF (XLK). While XLK invests ~3% of its holdings in Oracle, it also has a 31% exposure to application software. In the final part of our series, we’ll see what kind of recommendations analysts are giving for Oracle.