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What’s Red Hat’s Value Proposition in the US Software Space?

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Oct. 6 2017, Updated 9:36 a.m. ET

Red Hat’s scale in the software space

Earlier, we discussed Red Hat’s (RHT) fiscal 2Q18 results. We also discussed Red Hat’s strategic acquisitions as well as the company’s technical indicators. Now, let’s see where Red Hat stands in the software space.

On September 29, 2017, Microsoft (MSFT) with a market cap of $569 billion continued to be the largest software player by market capitalization in the virtualization space. It is followed by VMware (VMW). Red Hat and Citrix Systems (CTXS) are other prominent players in the virtualization space.

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EV-to-EBITDA valuation multiples

Red Hat was trading at a forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of ~21.78x on September 29, 2017. This metric was at a premium in comparison to peers, especially Microsoft and Citrix Systems, which had multiples of ~11.76x and ~10.83x, respectively. VMware was trading at a forward EV-to-EBITDA multiple of ~11.93x on the same day.

Red Hat, Citrix Systems, and VMware don’t pay dividends. Microsoft’s forward annual dividend yield was ~2.3% on September 29, 2017.

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