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IBM’s Value Proposition in the US Software Space


Dec. 4 2020, Updated 10:52 a.m. ET

IBM’s scale in the systems software space

Let’s look now at IBM’s (IBM) value proposition among select software companies in the United States. Let’s start with IBM’s size.

As of April 8, 2016, and as you can see in the graph below, Microsoft (MSFT) was the largest software player by market capitalization globally. It was followed by Oracle (ORCL). IBM was third in terms of market capitalization. SAP is also a leading player in this space.

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IBM’s enterprise value multiples

Now let’s look at IBM’s EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple. We’ll also look at other US software players.

IBM was trading at a forward EV-to-EBITDA multiple of ~8.77x on April 8, 2016. This metric was lower than Microsoft’s and Oracle’s at ~10.22x and ~9.10x, respectively. The same metric for SAP was 11.22x.

IBM’s dividend yield

IBM’s forward annual dividend yield was ~3.5% as of April 7, 2016. This was higher than Microsoft’s and Oracle’s forward dividend yields of ~2.7% and ~1.5%, respectively, as of April 8, 2016. SAP’s forward yield was 1.6% as of April 8.

For diversified exposure to companies in the US software space, you can consider investing in the Technology Select Sector SPDR ETF (XLK). XLK has ~38% exposure to application software.

In the final part of our series, we’ll see what kind of recommendations analysts are giving IBM.


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