What Is Oracle’s Value Proposition in the Software Space?


Sep. 14 2016, Updated 10:04 a.m. ET

Oracle’s scale in the software space

So far in this series, we’ve already discussed the market expectations from Oracle’s (ORCL) soon-to-be-announced fiscal 1Q17 results, as well as its recently announced acquisition in the cloud space. In this part, we’ll compare the company’s value proposition with other software companies in the United States.

As of September 9, 2016, Microsoft (MSFT) was the world’s largest software player by market capitalization, followed by Oracle, Red Hat (RHT), ServiceNow (NOW), and Tableau Software (DATA).

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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 ~9.2x on September 9, 2016. This metric was lower than Microsoft’s multiple of ~10.9x. By comparison, Red Hat’s and ServiceNow’s multiples stood at ~18.6x and ~49.7x, respectively, as of the same date.

Oracle’s dividend yield

Oracle’s forward annual dividend yield was ~1.5% on September 9, 2016—higher than Microsoft’s forward dividend yield of ~2.5% on the same date. ServiceNow and Tableau Software don’t pay dividends.

You can consider investing in the PowerShares QQQ Trust, Series 1 ETF (QQQ) to gain exposure to Microsoft, which makes up 8.4% of QQQ. Investors seeking application software exposure can also consider this fund. Application software makes up ~28.4% of QQQ.

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


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