Adobe (ADBE -0.39%) and Autodesk (ADSK 1.25%) Both provide essential digital tools for specific industries. Adobe’s Photoshop, Premiere Pro, and Illustrator are widely used by media and design professionals to provide e-commerce, marketing, and analytics tools for enterprise customers. Autodesk is best known for its flagship AutoCAD (Computer Aided Drafting) software for architects and engineers, but he also develops other his 3D design and digital prototyping tools.
Over the past decade, both Adobe and Autodesk have turned desktop software into cloud-based services. This strategy has locked customers into more attractive subscriptions, reduced fragmentation between different software versions, and widened the moat. Both stocks also played a credible role in the long-term expansion of the cloud software market.
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I compared these two stocks last June and concluded that Autodesk’s solid growth and low valuation made it a better buy. Since then, however, the difference in stock performance has been minimal. Autodesk’s stock rose about 1% while Adobe’s stock fell his 2%. Let’s revisit both strains and see if my original paper is still valid.
Adobe makes disruptive acquisition as growth slows
Adobe revenue grew 15% in fiscal 2020 (ending November 2020), 23% in fiscal 2021, and only 12% in fiscal 2022. Growth is expected to remain at 9% in fiscal 2023, and the slowdown is expected to continue as the economy faces more macroeconomic challenges. Currency headwinds.
The slowdown wasn’t surprising, but it doesn’t take into account the company’s planned $20 billion half-cash, half-stock acquisition of design software company Figma. The deal is divisive for three reasons: Adobe’s bid values Figma at a whopping 50x $400 million annual recurring revenue (ARR) in 2022, diluting its existing stake However, acquisitions still face regulatory challenges around the world. However, it claims to be able to complete a large deal by the end of this year.
On the bright side, acquiring Figma strengthens the Digital Media segment, which will account for 73% of revenue in FY2022, while also enhancing Adobe XD in the areas of user interface (UI) design and user experience (UX). can eliminate its strongest competitors. figma is already more than 2 times It’s outperformed ARR for the second year in a row, and when combined with Adobe’s other offerings, that growth could be significantly accelerated.
Adobe expects adjusted EPS to rise 12% to 14% in fiscal 2023 (excluding Figma), while analysts expect 13% growth. Based on these estimates, Adobe’s stock price still looks reasonable at 24 times expected earnings.
Autodesk’s growth also cools down, less dramatic changes
Autodesk’s revenue increased 16% in both fiscal years 2021 and 2022, and increased 14% in fiscal 2023 (ending January 2023). We expect 7% to 9% revenue growth in FY24 as we face macro and currency headwinds similar to Adobe’s. Slower growth in Europe is also offset by stronger growth in the US and Asia.
But unlike Adobe, Autodesk made no major acquisitions during that slowdown. In 2022, he acquired AR/VR design platform The Wild, optimization software developer Prodsmart, and cloud-based digital filmmaker Moxion, but all three deals remain private. It was a relatively small acquisition made for an amount of
Autodesk expects its operating margin to be broadly flat year-over-year in fiscal 2024 as it focuses on reducing costs and maintaining a healthy renewal rate. By comparison, Adobe’s operating margin is expected to decline this year as it juggles macro and currency challenges with new product launches and its planned acquisition of Figma.
Autodesk expects adjusted EPS to increase by 5% to 10% in fiscal 2024, while analysts expect 9% growth. The company’s stock price looks slightly more expensive than Adobe at 27 times future earnings.
Which stocks are the better investments?
It’s easy to see why Adobe and Autodesk trade so often. The two companies’ business models, growth rates and valuations are all fairly similar. Both stocks are still good long-term investments in the cloud software market, but I believe Autodesk is the safer investment at the moment as they are not looking to execute any major acquisitions. .
It makes sense for Adobe to buy Figma, but it’s also possible that Figma bites more than it chews and suffers from serious acquisition indigestion. Again, I think Autodesk will be a better buy than Adobe for the foreseeable future.
Leo Sun holds a position at Adobe. The Motley Fool recommends Adobe and Autodesk. The Motley Fool recommends Adobe for his January 2024 $420 long call and Adobe for his January 2024 $430 short call. The Motley Fool’s U.S. headquarters has a disclosure policy.
