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How Does Adobe Measure Up in the Application Software Space?

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Adobe’s scale in the application software space

So far in this series, we’ve discussed Adobe’s (ADBE) recently announced fiscal 4Q16 results. In this part, we’ll compare the company’s value proposition with that of other software companies in the United States.

On December 16, 2016, SAP (SAP) was the world’s largest player by market capitalization in the application software space. It was followed by Salesforce (CRM), Adobe, and Workday (WDAY).
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Adobe’s valuation multiples

Let’s look at Adobe’s EV-to-EBITDA[1. enterprise value to earnings before interest, tax, depreciation, and amortization] multiple. We’ll also look at other US software players’ multiples.

Adobe (ADBE) was trading at a forward EV-to-EBITDA multiple of ~22x on December 16, 2016. This metric was lower than SAP’s multiple of ~14.5x. In comparison, Salesforce’s and Workday’s multiples stood at ~29.7x and ~95.8x, respectively, on the same date.

Adobe’s dividend yield

SAP’s forward annual dividend yield was ~1.5% on December 16, 2016. Salesforce, Adobe, and Workday don’t pay dividends. Although Adobe doesn’t pay dividends, it spends millions on buying back its own shares.

You can gain indirect exposure to Adobe’s stock by investing in the PowerShares QQQ ETF (QQQ), which has a 0.84% exposure to Adobe. Investors seeking application software exposure could also consider QQQ. Application software accounts for ~24% of the fund.

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