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Adobe vs. AutoDesk: Which SaaS Stock to Pick?
Stock Analysis & Ideas

Adobe vs. AutoDesk: Which SaaS Stock to Pick?

According to a KBV Research report, the global cloud enterprise application market could be worth $143.5 billion by 2023.

Using the TipRanks Stock Comparison tool, let’s compare two companies in this space, Adobe (ADBE) and Autodesk (ADSK), and see how Wall Street analysts feel about these stocks.

I am neutral on both of these companies.

Adobe

Adobe’s portfolio of products and services includes digital media and a digital platform. The company’s portfolio of digital media services enables individuals and enterprises to create, promote and publish their content.

Adobe’s Experience Cloud enables businesses to create, manage and execute customer experiences, ranging from analytics to commerce.

The company is also strengthening its existing applications. On Wednesday, the company announced that payment services would now be available on Adobe Commerce. Adobe Commerce is the company’s end-to-end commerce application for business-to-business (B2B), direct-to-consumer (D2C), and hybrid-use cases.

The company has partnered with PayPal’s (PYPL) Commerce platform to offer an integrated and secure payment solution to merchants. Previously, Adobe Commerce customers had to integrate with third-party payment providers, or build their own payment systems.

Adobe is expected to announce its fiscal Q3 results on September 21.

In Q2, Adobe posted revenues of $3.84 billion, up 23% year-over-year and surpassing the Street’s estimates of $3.73 billion.

Adjusted earnings came in at $3.03 per share (compared to $3.14 a year ago), beating the $2.81 per share estimated by analysts.

In Q3, Adobe expects total revenues of $3.88 billion, while adjusted earnings is projected to come in at $3 per share. (See Adobe stock charts on TipRanks)

Adobe has followed a strategy of expanding its services and offerings through acquisitions. In August, the company announced the acquisition of Frame.io for $1.27 billion, and expects the deal to close in Q4 of FY21.

The purchase will enable Adobe to make use of Frame.io’s cloud-first workflows, and access Frame.io’s diverse user base. Adobe had also purchased work management platform Workfront in December 2020, in a $1.52-billion all-cash deal.

According to Jefferies analyst Brent Thill, Workfront has “taken off much faster than expected, and there seems to be no compelling competitor that manages the full marketing lifecycle.”

Thill has a Buy rating, and a price target of $750 (14.2% upside), on the stock.

Turning to the rest of the Street, analysts are bullish on Adobe, with a Strong Buy consensus rating, based on 18 Buys and two Holds.

The average Adobe price target of $677.11 implies 3.2% upside potential from current levels.

Autodesk

Autodesk offers subscription-based products, including cloud-based offerings, and a hybrid of desktop software and cloud functionality to designers and their stakeholders.

In Q2, Autodesk’s revenues jumped 16% year-over-year to $1.06 billion, surpassing the Street’s expectations of $1.05 billion. Subscription revenues came in at $1.02 billion, a 21% year-over-year increase.

Earnings came in at $1.21 per share, up 23.5% year-over-year. Analysts’ estimates called for $1.13 per share.

For Q3, the company expects EPS to be in the range of $1.22 to $1.28 per share, while revenues are projected to be in the range of $1.110 billion to $1.125 billion.

For FY22, the company’s projects EPS in the range of $4.91 to $5.06, and revenues in the range of $4.34 billion to $4.38 billion. (See Autodesk stock charts on TipRanks)

On September 1, at the company’s Investor Day, Autodesk reiterated its outlook for FY23, in line with the analyst’s estimates.

Rosenblatt Securities analyst Blair Abernethy added, “Overall, Autodesk expects double-digit [free cash flow] CAGR in the FY23-FY26 timeframe. Altogether, we remain positive on Autodesk’s growing end-markets and its expanding product offering to address its opportunity.”

The analyst reiterated a Buy rating, and a price target of $355 (23.8% upside) on the stock following Investor Day.

According to Abernathy, the company highlighted that its total addressable market (TAM) for water infrastructure software has significantly increased to $2.6 billion, thanks to its February acquisition of Innovyze.

Moreover, the analyst also noted increasing momentum for Fusion 360, a cloud-based software product that converges the process of design with manufacturing.

Elaborating further, Abernathy noted that with 165,000 paid subscriptions for Fusion 360 at the end of Q2, and with billings surpassing growth in active subscriptions, “at an average user price of $495/year, this amounts to ~$82m in revenue or about 1.9% of the Company’s total revenue guidance this year and growing rapidly.”

Other highlights from Investor Day, according to Abernathy, included rising adoption of the company’s cloud-based developer platform, Forge, and ADSK’s efforts to significantly reduce “the number of non-compliant devices with each generation of software.”

Turning to the rest of the Street, analysts are bullish on Autodesk, with a Strong Buy consensus rating, based on 10 Buys and 2 Holds.

The average Autodesk price target of $352.91 implies 23.2% upside potential from current levels.

Bottom Line

While analysts are bullish about both stocks, based on the upside potential over the next 12 months, Autodesk seems to be a better buy.

Disclosure: At the time of publication, Shrilekha Pethe did not have a position in any of the securities mentioned in this article​.

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