Best Stock Cloud: Adobe vs Salesforce
Adobe (NASDAQ: ADBE) and Selling power (NYSE: CRM) are two of the world’s largest cloud-based software companies. Eight years ago, Adobe began transforming its locally installed desktop software – which included Photoshop, Illustrator, and Premiere Pro – into subscription cloud services. It has also extended its cloud ecosystem with sales, marketing, advertising and analytics tools for businesses.
Salesforce, which was founded in 1999, revolutionized the on-premises customer relationship management (CRM) software market by launching its applications as cloud-based services. Like Adobe, it has also extended its cloud ecosystem with cloud-based sales, marketing and analytics services.
I compared these two cloud giants last May and concluded that Adobe’s lower valuation, more consistent earnings, and better diversification made it the best buy. Since I made that call, Adobe’s inventory has grown almost 70% while Salesforce’s inventory has grown by less than 50%. Will Adobe stay ahead of Salesforce over the next 12 months? Let’s take another look at the two cloud software giants to decide.
Which company has best resisted the pandemic?
Adobe’s revenue grew 24% in fiscal 2019, which ended in November of the same year, but grew only 15% in fiscal 2020, as demand from customers of small and medium-sized enterprises (SMEs) that fell throughout the pandemic.
But in the first nine months of fiscal 2021, Adobe’s revenue grew 24% year-over-year as those headwinds died down. Its digital media (Creative Cloud and Document Cloud) and digital business experience businesses both generated stronger growth as the SMB market recovered.
For the full year, Adobe expects its revenue and non-GAAP earnings per share to increase by 22% and 23%, respectively. These stable growth rates indicate that Adobe’s annual subscriptions are persistent and suggest that most of its creative cloud products still have enormous pricing power as industry standard media tools.
Salesforce revenue grew 29% in fiscal 2020, which ended in February of the same year, and 24% in fiscal 2021. The company primarily serves large businesses rather than SMEs, and therefore did not face as many headwinds linked to the pandemic as Adobe. Large companies still kept their CRM platforms online to manage their sales teams and customer relationships, and they still relied on Salesforce’s other cloud services to monitor their online performance throughout the pandemic.
Salesforce revenue grew 23% year-over-year in the first half of fiscal 2022, and expects sales growth of 24% for the full year . He expects his non-GAAP EPS to decline 11%, mainly due to a large tax benefit in 2021. Excluding that benefit, his forecast would imply earnings growth of 41%.
Pink expectations for the future
Adobe expects the total number of addressable markets for its Creative, Document, and Experience Clouds to grow significantly by 2023. However, it has not set specific revenue growth targets for the next few years.
Salesforce also expects all of its end markets to grow as businesses manage more customer relationships online, move more data to the cloud, automate tasks, and make more data-driven decisions. Last December, Salesforce predicted it would more than double its annual revenue to over $ 50 billion by fiscal 2026. It expects most of that growth to be organic, but Slack – the business communications platform it recently acquired – could also generate $ 4 billion in revenue in fiscal 2026.
Which stock is cheaper compared to its growth?
Adobe is trading at 49 times forward earnings, which is slightly lower than Salesforce’s forward P / E ratio of 64. Adobe seems cheaper than Salesforce relative to earnings, but it looks a lot more expensive relative to its earnings. sales. Adobe trades at 18 times forward sales, matching the valuations of some much higher growth stocks, while Salesforce trades at less than 10 times forward sales.
Investors typically prioritize revenue over profits from cloud software companies. So I would say price-to-sales ratios are more relevant to Adobe and Salesforce than price-to-earnings ratios.
Salesforce is also trading at just five times its revenue target for FY2026. As a result, Salesforce appears to be the cheapest game than Adobe right now, even though it is trading at a higher futures P / E ratio. raised.
Best cloud stock: Salesforce
Adobe and Salesforce are both great stocks of cloud software. But this time around, I think Salesforce has a brighter future because its business is less exposed to macro headwinds, it sets more ambitious long-term goals, and its inventory is cheaper relative to its sales growth.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.