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.
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.