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What’s VMware’s Value Proposition in the US Software Space?

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VMware’s scale in the software space

Earlier in the series, we discussed the market’s expectations for VMware’s (VMW) fiscal 1Q18 results. We also discussed VMware’s acquisitions and strategic partnerships.

Now, let’s take a look at where VMware is positioned in the software space.

On June 6, 2017, Microsoft (MSFT) continued to be the largest software player in the virtualization space in terms of market capitalization. VMware came in second place, with Citrix Systems (CTXS) and Red Hat (RHT) following.

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Valuation multiples

On June 6, 2017, VMware had a forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of ~11.25x, lower than Microsoft’s and Citrix Systems’ ~13.57x and ~11.88x, respectively. Red Hat was trading at a forward EV-to-EBITDA multiple of ~21.49x on the same day.

VMware’s dividend yield

VMware, Red Hat, and Citrix Systems don’t pay dividends. Microsoft’s forward annual dividend yield was ~2.2% on June 6, 2017.

You may want to consider investing in the SPDR S&P 500 ETF (SPY) (SPX) to gain exposure to the technology sector. SPY holds ~8.4% in application software stocks.

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