Better to Buy: Adobe vs. Autodesk


Adobe (ADBE -3.55%) and Autodesk (ADSK -3.35%) are both household names for designers and media professionals. Adobe’s creative software products, including Photoshop, Premiere Pro, Illustrator and After Effects, are widely used by media professionals, and the company also provides cloud-based services to businesses.

Autodesk produces AutoCAD, which revolutionized computer-aided drafting and design software such as Sketchbook and Inventor. Its 3ds Max and Maya platforms are also widely used to create 3D animations.

Both companies have remained resilient throughout the pandemic. Over the past 12 months, Adobe’s stock is up about 35% while Autodesk’s stock is up nearly 50%. Let’s take a look at how the two software companies weathered the crisis and whether either of these stocks is a better overall investment.

Image source: Getty Images.

Differences between Adobe and Autodesk

Adobe has turned all of its desktop software into subscription software cloud service during the last years. It now hosts all of its design software in the Creative and Document Clouds, which are included in the digital media segment, which generated 72% of the company’s revenue in fiscal 2020.

The rest of Adobe’s revenue came from its Digital Experience unit, which offers cloud-based advertising, analytics and e-commerce services to enterprise customers. These companies compete with other big players like Selling power and Shopify.

Autodesk divides its software portfolio into four main groups: AEC (architecture, engineering and construction), AutoCAD, MFG (manufacturing) and M&E (media and entertainment).

Autodesk generated 44% of its revenue from AEC software in the first nine months of fiscal 2021, which began last January. Another 30% came from its AutoCAD products, 20% came from its MFG software and 6% came from its M&E software. Autodesk has also turned most of its desktop software into subscription-based cloud services, but its subscriptions are significantly more expensive than Adobe’s.

How fast are Adobe and Autodesk growing?

Adobe’s revenue grew 15% to $12.87 billion in 2020. Its digital media revenue grew 20%, driven by steady demand for its Creative and Document Cloud services throughout the pandemic .

Its digital experience revenue grew 12% as slower growth in its ad cloud during the pandemic offset stronger growth in its other enterprise clouds. Adobe also discontinued the ad cloud’s low-margin managed service for programmatic TV ads during the year.

Despite these challenges, Adobe’s adjusted EBIT margin still fell from 39.9% to 42.9%, and its adjusted EPS rose 28% as it spent $3 billion on buybacks. She bought back those shares at an average price of $376.38 per share, 20% below her current price.

Adobe expects revenue to grow 18% in fiscal 2021, with similar growth rates in its Digital Media and Experience segments, and adjusted earnings to grow 11%.

A graphic designer works on a project.

Image source: Getty Images.

Autodesk’s revenue grew 16% year-over-year to $2.75 billion in the first nine months of fiscal 2021. Its four segments all grew, with segments AEC and AutoCAD generating double-digit growth and the MFG and M&E segments posting single-digit growth. growth.

Autodesk’s retention rate remained above 100% throughout the crisis, indicating that companies did not stop using its standard design and animation software even when the pandemic disrupted their activities. Autodesk’s operating margin increased year-over-year from 8.8% to 16.1% in the first nine months as spending fell during the pandemic – especially for travel – having reduced its operating expenses.

Autodesk repurchased $399 million in stock at an average price of $185.69 during those nine months, representing a 36% discount from its current price. Those buyouts, along with its steady revenue growth and rising margins, pushed its adjusted EPS up 53% year-over-year.

Autodesk expects full-year revenue to grow 15% and adjusted earnings to grow 40% to 42%. Next year, analysts expect its revenue and profit to rise 14% and 31% respectively.

The evaluations and the verdict

Adobe and Autodesk share similar strengths. They both provide essential subscription-based software for professionals, they drive double-digit revenue and profit growth, and they execute smart buyout plans.

However, Adobe shares are significantly cheaper at 36 times forward earnings and 13 times next year’s sales. Autodesk has a front P/E ratio of 57 and is trading at 15 times next year’s sales.

That lower valuation, along with Adobe’s more diverse cloud platforms and gradual recovery of its ad cloud, could make Adobe a better buy than Autodesk right now. Autodesk remains a solid long-term investment, but its higher rating could limit its upside potential this year.


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