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



Microsoft’s position in systems software

Previously, we discussed Amazon and Microsoft’s (MSFT) role in the S&P 500’s (SPX) recent surge as well as NASDAQ’s outperformance. Despite the massive surge in Microsoft stock, which helped its market cap to cross the $724 billion mark, it’s lagging behind Amazon (AMZN), which has a market cap of ~$726 billion.

As of February 23, 2018, Microsoft continued to be the largest software player. Oracle (ORCL), with a market capitalization of ~$209 billion, came in second. With market caps of ~$27.7 billion and ~$25.6 billion, ServiceNow (NOW) and Red Hat (RHT) placed third and fourth, respectively, while Tableau Software (DATA) held fifth place.

Article continues below advertisement

Valuation and dividend yields

Now, we’ll compare Microsoft’s and peers’ EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiples. On February 23, Microsoft was trading at a forward EV-to-EBITDA multiple of ~15.12x. In comparison, Oracle’s multiple was ~10.3x and Red Hat’s was ~31.5x.

Microsoft’s forward annual dividend yield was ~1.8% as of February 23, higher than Oracle’s ~1.5%. Dividend payout indicates how much a company pays in dividends in relation to its stock price. Microsoft stock’s consistent rise has thus reduced its dividend yield.


More From Market Realist