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



Salesforce’s scale in the software space

Earlier in this series, we discussed Salesforce’s (CRM) recently announced fiscal 2Q17 earnings. Now, let’s look at the company’s value proposition compared to those of other companies in the US software space.

As of September 2, 2016, and as the above chart shows, Microsoft (MSFT) continued to be the largest player by market capitalization in the global software space. It was followed by Oracle (ORCL). IBM (IBM), SAP (SAP), and Salesforce are other prominent players in the software space.
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Salesforce’s enterprise value multiples

Now let’s look at Salesforce’s EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple. We’ll also look at the multiples of other US software players.

Salesforce was trading at a forward EV-to-EBITDA multiple of ~30.5x on September 2, 2016. This metric was higher than Microsoft’s ~11.0x. SAP and Oracle had metrics of ~14.0x and 9.3x, respectively.

Salesforce’s dividend yield

Microsoft’s forward annual dividend yield was ~2.5% as of September 2, 2016. Oracle’s and IBM’s forward annual dividend yields were ~1.5% and ~3.5%, respectively, as of September 5. Unlike its peers in the software space, Salesforce doesn’t pay dividends.

Investors who want to gain exposure to Salesforce can consider investing in the SPDR S&P 500 ETF (SPY). SPY has exposure of ~29% to application software. It invests ~0.23% of its holdings in Salesforce. In the final part of our series, we’ll see what recommendations analysts are giving for Salesforce.


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