Adobe Vs Salesforce Stock: Investors are well-aware that cloud computing is the future of business technology. In many cases, they are adding stocks like NVIDIA (NVDA), Microsoft (MSFT), Amazon (AMZN), and Alibaba (BABA) to their portfolios, because these are the companies leading the way in cloud computing infrastructure.
However, there is more to investing in the cloud than focusing on companies that offer cloud services. Certain software stocks are poised for substantial growth, as they have the cloud-based technology businesses want to increase efficiency, reduce expenses, and move their workflow into the digital age.
The stocks getting the most attention in this industry include those that deliver Software as a Service (SaaS) via subscription to the world’s largest corporations. These companies have consistent, reliable revenue streams, because clients sign up for on-going access to software.
The Old World Pre-SaaS
Compare this to the traditional method of selling software. Clients made one-time purchases that came with occasional upgrades. Under that model, software companies saw large increases in sales after a new release, and then a lengthy decline until another release was ready.
At the moment, companies specializing in SaaS make up 25 percent of the total software market for large organizations. That figure is expected to reach 80 percent of the total market by 2030 – a value of $780 billion.
Salesforce (CRM) was one of the earliest entrants to the SaaS space, but these days, there is heavy competition. Adobe (ADBE) is also considered a major player in SaaS, and both stocks have seen steady growth over the past five years.
Investors looking to add an SaaS stock to their portfolios have a difficult decision to make. When it comes to Adobe vs. Salesforce stock, which is best?
Adobe Revenues Still Growing Fast
Adobe software is a staple in business.
From Portable Document Format (.pdf) document preparation to creativity applications like Photoshop, Adobe offers some of the most popular software in the world.
Again and again, Adobe proves to be a winner on quality, as it beats out competing products that have similar features and a much lower price tag.
As early as 2013, Adobe moved to a subscription model and retired traditional on-site installation of its products.
Investors were concerned when revenues dropped immediately following the change, but that dip was only temporary.
Once Adobe got off of the feast-or-famine roller coaster, it was clear that revenues didn’t decrease – they just evened out. That made the stock a must-have for growth portfolios.
In 2013, Adobe’s total revenue came in at approximately $4 billion. At the close of 2019, that figure was over $11 billion.
The rise was, in part, due to the increase in subscribers who couldn’t previously afford to purchase Adobe software.
Thanks to the new model, instead of handing over hundreds of dollars at once, they enrolled in monthly subscription plans that came to less than $1 per day.
In addition, Adobe moved beyond its basic creativity options and expanded into e-commerce services, analytics, and advertising.
The first nine months of 2020 have been lucrative for Adobe and its shareholders. Despite the challenges of the COVID economy, the company grew revenue by 15 percent.
Total revenue came in at $9.4 billion for the first three quarters of the year, and earnings per share increased by 30 percent.
That figure might have been higher had the pandemic not depressed demand for Adobe’s e-commerce, analytics, and advertising software.
In the most recent earnings statement, business leaders suggested that revenue will increase by approximately 15 percent for the full year, and earnings per share are expected to be around 26 percent for the 12-month period.
Analysts weighed in on projections for 2021, and it appears that growth will remain steady. The consensus is that over the next 12 months, revenues will go up another 15 percent, and earnings will rise approximately 12 percent.
Overall, that makes Adobe a smart buy.
Salesforce Market Share Remains Impressive
Salesforce holds a leadership position in customer relationship management software (CRM).
In 2019, the company owned more than 18 percent of the total market – more than three times its closest competitor. Rival SAP had just over 5 percent market share in CRM.
Customer relationship management isn’t the only area where Salesforce shines. It also offers a collection of marketing, e-commerce, and analytics services that are quite popular among existing Salesforce clients.
These platforms integrate with Salesforce’s CRM software in a manner that increases enterprise efficiency for clients. Many have been able to streamline workflow and increase the number of tasks that can be automated, which results in lower payroll costs.
In the first six months of 2020, Salesforce increased revenues by 30 percent year-over-year for a total of $10 billion. Adjusted earnings per share went up by 35 percent, much to the delight of shareholders.
Management expects to see total year revenue to come in roughly 22 percent higher year-over-year, and full-year earnings-per-share growth is expected to be slightly above 24 percent.
Salesforce didn’t benefit from pandemic-related changes in consumer behavior to the extent that tech giants like Netflix (NFLX) and Amazon (AMZN) did, but it does attribute some of its 2020 success to the challenges of COVID.
Many businesses moved their workforce home, increasing reliance on cloud-based services. Salesforce’s CRM platform, along with cloud-based marketing and e-commerce software, were critical to that transition.
Next year may be a little less lucrative from an earnings standpoint, according to analysts. While revenues are expected to increase by approximately 18 percent over the next 12 months, earnings are likely to be flat. This isn’t due to any issue with the short-term strategic plan – it has more to do with completing the integration of recently-acquired Tableau.
All in all, investors can be confident when adding Salesforce shares to their portfolios. The company is on a strong long-term growth trajectory as a leader in the SaaS space.
Competition Is The #1 Risk To Adobe Stock
While Adobe is, generally speaking, in a solid position to grow and profit, no investment is completely without risk.
For Adobe, the primary concern is related to competition – not so much in its Digital Media division, which is the home of creativity software, but in its newer Digital Experience division.
Digital Experience handles advertising, analytics, and e-commerce tools, all of which are becoming critical to business operations.
However, Adobe has heavy competition from companies like Salesforce and Shopify (SHOP), and it isn’t currently clear which will successfully capture the largest piece of the market share pie.
Salesforce Invests Massively In Sales & Marketing
Salesforce is a dominant force in the CRM market, and the upward trajectory of its stock price proves investors are confident that the company’s success will continue. That’s likely true, but there is one concern. Salesforce puts a lot of cash into sales and marketing activities.
These expenditures may ultimately deliver a strong return on investment in the form of revenue growth, but for the moment, Salesforce simply isn’t as profitable as Adobe.
Some potential shareholders may determine that to be an important consideration in their Salesforce vs. Adobe stock decision.
Salesforce Vs Adobe Stock: The Bottom Line
Both Salesforce and Adobe are relatively expensive when considered in a vacuum, but their price-to-earnings ratios are fairly standard for the industry. Either is a smart choice for a well-diversified portfolio, but if you must decide between the two, Adobe has a slight edge.
For now, Adobe’s profits are relatively stable – a claim that isn’t quite true of Salesforce. More importantly, there is more diversity in Adobe’s revenue streams, which may turn out to be critical in these volatile times.
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.