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What Drove VMware’s Fiscal 2Q17 Results?

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Part 19
What Drove VMware’s Fiscal 2Q17 Results? PART 19 OF 20

A Look at VMware’s Value Proposition in the US Software Space

VMware’s scale in the software space

Earlier in this series, we discussed VMware’s (VMW) fiscal 1Q18 results. We also discussed the company’s technical indicators to see whether any upward movement is indicated in its stock. Now, let’s look into VMware’s position in the software space.

On June 6, 2017, as the chart below shows, Microsoft’s (MSFT) market cap was ~$560 billion. MSFT retained its rank as the largest software player in the virtualization space in terms of market capitalization. VMware came in second place, with Red Hat (RHT) and Citrix Systems (CTXS) following in third and fourth places, respectively.

A Look at VMware’s Value Proposition in the US Software Space

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Valuation multiples

On August 29, 2017, VMware had a forward EV-to-EBITDA1 multiple of ~12.4, lower than Microsoft’s ~12.8x but higher than Citrix Systems’ ~11.3x. Red Hat was trading at a forward EV-to-EBITDA multiple of ~24.0x on the same day.

VMware’s dividend yield

VMware, Citrix Systems, and Red Hat don’t pay dividends. Microsoft’s forward annual dividend yield was ~2.1% on August 29, 2017.

You may want to consider investing in the SPDR S&P 500 ETF (SPY) (SPX) to gain broad-based exposure to the technology sector. SPY holds ~8.4% in application software stocks.

  1. enterprise value to earnings before interest, tax, depreciation, and amortization
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