What Is Microsoft’s Value Proposition in the US Software Space?



Microsoft’s scale in the systems software space

So far in this series, we’ve discussed notable events at Microsoft (MSFT) as well as its recent acquisition of Beam. Now let’s look at the value proposition of the company among select software companies in the United States.

As of August 15, 2016, Microsoft continues to be the largest software player by market capitalization on a global scale. It’s followed by Oracle (ORCL). Red Hat (RHT), ServiceNow (NOW), and Tableau Software are also among the leading players in the systems software space.
market cap

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Enterprise value multiples

Now let’s look at Microsoft’s EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple and those of select software players in the US.

Microsoft was trading at a forward EV-to-EBITDA multiple of ~10.1x on August 15, 2016. Red Hat’s EV-to-EBITDA multiple was ~16.3x, and Oracle’s (ORCL) was ~8.9x as of the same date.

Dividend yield

Microsoft’s forward annual dividend yield was ~2.5% as of August 15. This was higher than Oracle’s forward dividend yield of ~1.5% as of August 15. Red Hat and ServiceNow don’t currently pay dividends.

You might consider investing in the PowerShares QQQ Trust Series 1 ETF (QQQ) to gain exposure to Microsoft. MSFT accounts for 8.4% of QQQ. Investors looking for application software exposure might also consider QQQ. Application software accounts for ~28.4% of QQQ.

In the next and final part, we’ll look at analyst recommendations.


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