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What’s Rackspace’s Value Proposition in the Software Space?


Aug. 2 2016, Updated 8:10 a.m. ET

Rackspace’s scale in the software space

Earlier in this series, we discussed Rackspace’s (RAX) recently announced acquisitions in the cloud space. Now, let’s look at the value proposition of the company in the US software space. Let’s start with Rackspace’s size.

As of July 26, 2016, Microsoft (MSFT) was the largest global player by market capitalization in this space, followed by Oracle (ORCL). IBM (IBM), Salesforce (CRM), Akamai (AKAM), J2 Global (JCOM), and Rackspace are some other leading players in this space.
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Rackspace’s enterprise value multiples

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

Rackspace was trading at a forward EV-to-EBITDA multiple of ~4.02x on July 26, 2016. This metric was lower than Microsoft’s at ~9.97x. The same metric for IBM and Oracle were 9.37x and 8.72x, respectively.

Rackspace’s dividend yield

Microsoft’s forward annual dividend yield was ~2.5% as of July 26, 2016. Oracle’s and IBM’s forward annual dividend yields were ~1.5% and ~3.5%, respectively, as of July 26. Rackspace, Akamai Technologies, and Salesforce don’t pay dividends. In the final part of our series, we’ll see what kind of recommendations analysts are giving for Rackspace.


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