Adobe Inc (NASDAQ:ADBE) and Microsoft Corporation (NASDAQ:MSFT) are two of the leading enterprise software companies in the world. Their productivity and creativity suites are used by some of the top companies of every industry, in the government, and beyond.
They pioneered the software-as-a-service business model and helped create the subscription-based digital world we live in today.
But which is the better investment opportunity between Adobe vs Microsoft stock?
Both companies armed businesses big and small with the tools needed to stay in business since the pandemic. As the world moved to virtual work and school, PDFs with virtual signatures and Word docs with important information became standard. There are no excuses to not have a basic working knowledge of these platforms, and expertise can get you a career for life.
So which is best for your portfolio? We begin with Adobe.
Adobe Revenue Grew 15%
Adobe circled an all-time high market cap in 2020 of $235 billion, with a P/E ratio of 62x.
Its stock price is largely considered a buy under $500, as it has a composite rating over 95. The company’s 2019 revenue was $11.17 billion, which gave it net income of $852 million and a stock price that was double its 2018 value.
The company’s productivity suite includes Photoshop for graphic design, Premiere Pro for video editing, GoLive and Dreamweaver for web design, and Acrobat for documents.
It also has a stock image market called Adobe Stock that competes with the likes of Getty Images and Shutterstock. Its next-gen Sensei artificial intelligence (AI) network came just in time to help make up for the phase out of its popular Flash standard from Chrome web browsers.
Because of these steps, Adobe outperformed the general market following the stock market crash. Its 2020 earnings showed revenue grew year-over-year by 15 percent in the fiscal third quarter, coming in at $9.4 billion.
Bullish investors believe the company will continue its growth pattern, while remaining a crucial part of creative professional toolkits. But it’s facing competition from an enterprise giant in Microsoft.
Microsoft Takes On Zoom (& Much More)
Microsoft is one of the largest companies in the world, with a market cap over $1.6 trillion at the end of 2020.
It rebounded from the coronavirus market crash thanks in part to its enterprise infrastructure that includes the Windows operating system (OS), Microsoft 365 cloud-based productivity suite (Word, Excel, etc), Outlook, Azure, Bing online search, and its Xbox video game console, which sold out in fall preorders and are a hot ticket for the holiday season.
But that’s not all. The company’s Surface lineup is quickly becoming a venerable iPad competitor
CEO Satya Nadella is focused on a mobile-first strategy, and it responded to the popularity of Zoom (ZM) meetings during the COVID-19 lockdowns by pushing its own Teams collaboration platform.
Because it has such strong enterprise contracts, it wasn’t hard to make the ad-on sale to stunt Zoom’s growth. This, of course, caused Zoom (ZM) to file an antitrust suit, something Microsoft is used to facing.
Cloud computing will be the center of Microsoft’s strategy moving forward, and bullish investors believe it has plenty of room to grow; the company’s stock pays an annual dividend yield of $2.24, with a 36.07 P/E ratio.
It’s pushing into the markets of Salesforce (CRM), Oracle, SAP, Apple, and more. If it can maintain its strangleholds on enterprise and government computers, Microsoft will remain a tech juggernaut for generations to come.
Adobe Losing Flash Hurts Its Top Line
Adobe was already heading for a revenue slowdown before the coronavirus hit. While the temporary pandemic gave it a boost, it may not be sustainable.
The company is already losing out on revenue generated by Flash, which remained embedded in internet browsers and websites for decades. Its high price means smaller returns for investors jumping in at this time.
Competitor SAP also showed a disappointing third quarter, which leads some bearish investors to believe Adobe could struggle to maintain sales in 2021.
Businesses are slashing software budgets, even with the push to virtual work. Adobe will need to remain nimble and capitalize on opportunities moving forward to keep from deflating.
Dangers Of Investing in Microsoft
Microsoft long held the top spot in enterprise OS, but Android, Apple, and even Linux made strides over the past decade. It has stiff competition in cloud computing from the likes of not only Adobe, but also Amazon Web Services, Dropbox (DBX), Box (BOX) and more.
And even the Xbox lost luster compared to rival Sony’s PlayStation over the generations. Its push to cloud-based gaming across both the console and PCs are likely to define the company’s video game future.
Still, its massive size didn’t give Microsoft the advantage everywhere. Its Bing service still severely lags behind Google in online search.
Even though it had tablet PCs long before the iPad, it failed to catch on with consumers, just like the Zune. And Cortana is trailing voice assistants like Alexa and Siri.
Between heavy competition and government intervention, Microsoft will never have a clear path to victory.
Microsoft Vs Adobe Stock: The Bottom Line
Adobe and Microsoft are SaaS giants who pioneered the enterprise software industry for a generation. Each company saw revenue gains that grew their market caps to historic highs in the aftermath of the coronavirus outbreak.
This is because the push to virtual work and digital everything favored these established platforms. They’re also at the base of nearly every industry on the planet. However, success is never guaranteed.
Both are competing with each other, along with giants like SAP, Oracle (ORCL), Apple (AAPL), and Google (GOOG). However, they’re not unarmed – both companies have strong revenue-generating opportunities that should outlast any economic recession.
Adobe sales are slowing while Microsoft earnings continue to grow fast, giving the edge to Bill Gates’ juggernaut.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.