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Salesforce’s Value Proposition in the Software Space


Feb. 27 2017, Updated 9:06 a.m. ET

Salesforce’s scale in the software space

Earlier in this series, we discussed market expectations for Salesforce’s (CRM) soon-to-be-announced fiscal 4Q17 earnings. We also discussed how Salesforce’s recent acquisition of Sequence will enhance its presence in the digital space.

Now, let’s compare the company’s value proposition with that of other companies in the US software space. As of February 21, 2017, 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 valuation

Salesforce was trading at a forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of ~33.4x on February 21, 2017, higher than Microsoft’s ~12.6x. SAP and Oracle had multiples of ~14.3x and 10.0x, respectively.

Salesforce’s dividend yield

Microsoft’s forward annual dividend yield was ~2.4% as of February 21, 2017, and Oracle’s and IBM’s yields were ~1.4% and ~3.1%, respectively. Unlike its peers in the software space, Salesforce doesn’t pay dividends.

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


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