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Oracle’s Value Proposition: A Peer Comparison



Oracle’s scale in the software space

Earlier in this series, we discussed Oracle’s (ORCL) recent acquisition of NetSuite in the cloud space. In this part, we’ll compare the value proposition of the company and other software companies in the United States.

As of July 29, 2016, Microsoft (MSFT) was the world’s largest software player by market capitalization. Oracle followed. Red Hat (RHT), ServiceNow (NOW), and Tableau Software (DATA) are some other leading players in the systems software space.
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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 ~8.80x on July 29, 2016. This metric was lower than Microsoft’s multiple of ~9.70x. Red Hat’s and ServiceNow’s multiples stood at ~16.59x and 31.47x, respectively.

Oracle’s dividend yield

Oracle’s forward annual dividend yield was ~1.5% on July 29, 2016. This was higher than Microsoft’s forward dividend yield of ~2.6% on the same day. ServiceNow and Tableau Software don’t pay dividends.

For diversified exposure to select software companies in the United States, you could consider investing in the SPDR S&P 500 ETF (SPY). This ETF has 8% exposure to the application software industry.

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


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