IBM’s Value Proposition in the US Software Space



IBM’s scale in the systems software space

So far in this series, we’ve discussed market expectations from IBM’s (IBM) fiscal 3Q17 earnings results as well as the company’s foray into blockchain technology.

On October 10, 2017, Microsoft (MSFT) had a market cap of ~$587 billion. The software giant is the world’s largest software player by market capitalization. MSFT is followed by Oracle (ORCL) and IBM. SAP (SAP) is another dominant player in this space. SAP’s market capitalization has soared and is on the way to surpassing IBM in terms of market capitalization.

Apart from working to expand and strengthen its position in the competitive cloud space, IBM is investing in disruptive technologies like blockchain that are perceived to be beneficial across various sectors.

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Enterprise value multiples

Let’s look at IBM’s value and shift from IBM’s market cap to its EV-to-EBITDA[1. enterprise value to earnings before interest, tax, depreciation, and amortization] multiple. This ratio assists investors who are looking for potential undervalued investing opportunities in a particular sector or industry.

On October 10, 2017, IBM’s forward EV-to-EBITDA multiple was ~9.0x. That metric was lower than Microsoft’s multiple of ~13.6x and Oracle’s multiple of ~10.0x. This metric for SAP was 16.3x.

In the final part of this series, we’ll see what kind of recommendations analysts are giving IBM before its 3Q17 results.


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