6 Oct

Inside Microsoft’s Value Proposition in the US Software Space

WRITTEN BY Anne Shields

Microsoft’s scale in the systems software space

So far in this series, we’ve discussed the growth of the cloud space and of key players in that space in 2Q16. Microsoft (MSFT) reported 100% growth in the overall cloud space and managed to occupy the top position in SaaS (software-as-a-service), which had long been held by Salesforce (CRM). Now let’s look at the value proposition of the company among select software companies in the United States.

As of October 05, 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.
Inside Microsoft’s Value Proposition in the US Software Space

EV multiples and dividend yields

Microsoft was trading at a forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of ~10.9x on October 5, 2016. By comparison, Red Hat’s EV-to-EBITDA multiple was ~20.3x, and Oracle’s (ORCL) was ~8.6x on the same date.

Microsoft’s forward annual dividend yield was ~2.7% on October 5, which is higher than Oracle’s forward dividend yield of ~1.5% on the same date. Red Hat and ServiceNow don’t currently pay dividends.

Notably, you can invest in the PowerShares QQQ Trust Series 1 ETF (QQQ) for exposure to Microsoft, which makes up 8.4% of QQQ. Investors who would like exposure to application software could also consider this ETF. 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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