Understanding IBM’s Value Proposition in the US Software Space



IBM’s scale in the systems software space

Now that we’ve discussed International Business Machines’ (IBM) recently announced fiscal 2Q16 results, let’s look at IBM’s value proposition among select software companies in the United States, starting with IBM’s size.

As of July 20, 2016, Microsoft (MSFT) was the largest software player by market capitalization globally. It was followed by Oracle (ORCL). IBM was third in market capitalization. SAP (SAP) is also a leading player in this space.
Mkt cap

All these players are trying to enhance and strengthen their positions in the cloud space. Amazon (AMZN), Microsoft, IBM, and Google (GOOGL) (GOOG) collectively grew by 93% and account for more than half of the overall cloud space.

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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 ~9.08x on July 20, 2016. This metric was lower than Microsoft’s and Oracle’s ~10.23x and ~8.85x, respectively. The metric for SAP was 11.50x.

Dividend yields

IBM’s forward annual dividend yield was ~3.5% as of July 20, 2016. This was higher than Microsoft’s and Oracle’s forward dividend yields of ~2.7% and ~1.5%, respectively, as of July 8. SAP’s forward yield was 1.7% as of July 20.

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


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