To watch Adobe y SalesforceWhile there are many differences, they compete directly in some areas. And when overall performance is considered, the numbers weren't all that different in their most recent earnings reports:
For Adobe:
- Income from $ 4.53 billion in line with analysts' expectations, up 10%, translating to 14% in flows, if the dollar weren't strong enough to drag down foreign earnings numbers.
For Salesforce:
- Income from $ 7.8 billion, compared to the $7.200 billion expected by analysts. That was 14% more, or 19% in constant flows.
At first glance, that's pretty similar, but Salesforce's stock price has fallen since it disclosed its results. On Friday, the day after Adobe announced its latest results, its shares closed up nearly 3%.
To be fair, Salesforce dropped the explosive news that Bret Taylor would be leaving at the same event, which may have spooked some investors, but Adobe's 10% figure isn't exactly something to be proud of.
In fact, it's dangerously close to single-digit growth stagnation, a place no public company wants to live in (except perhaps IBM). But Adobe has a couple of things going for it that Salesforce doesn't. The first is that you are diversifying your income to a great extent, which should help as we head into the new year amid ongoing economic turmoil.
While the vast majority of revenue still comes from the creative side of the house, as Adobe celebrates its 40th anniversary, we're beginning to see CEO Shantanu Narayen's long-term bets on marketing begin to pay off. That includes the $4,750 billion Marketo acquisition and the $1,600 billion Magento acquisition, both of which occurred in 2018.
The company also announced that Experience Cloud, which includes marketing tools and analytics products, hit $1 billion in the quarter for the first time — $1,15 billion, to be more precise.
Brent Leary, founder and principal analyst at CRM essentials, who closely watches the marketing and sales markets, said it's a big milestone for Adobe.
“I think most people still think about Photoshop, Illustrator and the rest of the Creative Cloud apps, but the fact that Experience Cloud reaches this milestone illustrates the importance of using those tools to create and manage customer experiences to build deep and lasting relationships with them.
"Experience Cloud steps out of the shadows of Creative Cloud a bit," Leary said.
And speaking of diversification, investors may not have liked Figma's $20 billion price tag when it was announced, but they seem to be getting used to the idea of it becoming part of the company. Of course, the deal still has significant regulatory hurdles to clear in the US. and abroad before it comes true.
Even without that, though, be realistic: Figma revenue isn't going to move the bottom line much anytime soon, and Adobe is doing pretty well. But digging deeper into the two reports and let's see if they're as similar as they seem at first glance and you can see why Adobe is getting more favorable treatment for investors.
Adobe growth rate
Unlike many SaaS companies that end their fiscal years a month after the close of the calendar year, Adobe's fiscal year ended on December 2, 2022. When looking at its fiscal year 2022, it refers to the 12 months ending this year. December, while its 2023 fiscal year will close in early December next year.
As noted above, in unadjusted terms, Adobe is approaching single-digit growth. That's not where any software company with a history of growth wants to find itself. That said, there are a few things coming up that could help Adobe's growth rate go up a few points.
Recall that Adobe told investors that in its fiscal 2023 it expects total revenue of $19.1 billion to $19.3 billion (and that Salesforce told analysts that the economy is too volatile to even project its revenue for fiscal year 2024 at this time). Compared to the $17.610 billion it posted in its fiscal 2022 year, Adobe expects growth of 8,5% to 9,6% next year. So the dreaded single-digit pace of growth is to be expected, right?
We have to consider:
- Software companies, like other companies, are likely to be a bit conservative in their guidance given general macroeconomic uncertainty.
- Also, the currency woes that cost Adobe four points of growth in Q2022 XNUMX are easing, which could help it grow faster next year.
- Also, there's Figma to consider.
It was previously detailed that the Figma purchase will not provide much of a boost to Adobe's bottom line, which is true. But the deal has a chance to boost the company's growth rate enough to get it out of the danger zone on its own. (A similar argument could be made regarding the growth rate of Salesforce and its past acquisitions, especially those worth billions, like Slack.)
What is the reason? Adobe's fiscal 2023 expectations do not include potential revenue from Figma, as the company is currently independent and private. That was clear in the benefits of Adobe. What is known, since the agreement was announced is:
- Figma was expected to add around $200 million in annual recurring revenue (ARR) this year.
- That growth was expected to push the company's year-end ARR above $400 million.
If Figma is only supposed to be able to maintain its ARR growth in dollar terms next year. That would push the company's growth rate to around 50% from around 100% this year, and push its ARR to around $600 million next year.
GAAP (Generally Accepted Accounting Principles) revenue follows ARR figures, as the latter are sort of a forward-looking metric, so assume, say, $500 million in aggregate net revenue in 2023 if Figma were part of Adobe from the start. of the year (again, fiscal quarters and the calendar do not mesh perfectly). The question, therefore, becomes: would a $500 million benefit in fiscal 2023 revenue at Adobe make a material change in its growth rate?
The market believes that the answer is yes. With $500 million on the top line added to Adobe's current non-Figma projections, it would generate about $19.6 billion to $19.8 billion in total revenue next year. That would boost its growth rate to between 11,3% and 12,4%. Even without a more favorable monetary environment, and what we assume is conservative growth guidance from the company, the additional revenue from Figma could keep Adobe away from single-digit growth. That's a place no company wants to be unless it intends to focus more on shareholder return (dividends, buybacks) than growth. And since Adobe is looking to buy Figma, we can infer that it is more focused on growth than anything else.
There's a lot more going on at Adobe, including expanding its product suite, growing subscribers, and more. But those considerations are already built into your guide; Figma's deal is the X factor in its potential 2023 results that is sobering.
Adobe beat earnings expectations in its most recent quarter and analysts anticipate it will generate $19,37 billion in revenue next year. As long as Figma doesn't end up being a drag on profitability when the deal closes, Adobe could be in good shape to grow faster than anticipated next year while beating earnings expectations in the near term. It's not a bad combination.
Will it be enough for re-inflate the company's market capitalization how far was it? You don't have to anticipate. But amid slowing Adobe growth, there are some positive vibes. We may see related dynamics in other software companies preparing a better 2023 schedule than some expect.
How does that compare to Salesforce? Well, it's pretty close as far as the data is available. Let's not forget that Salesforce declined to provide a forecast for its next fiscal year, but it did project the next quarter, so at least wse can look at this point and see how that projection compares to Adobe's growth.
In the most recent report, Salesforce slowed its growth from 27% to 22%. That's still a very good number, but expect 8-10% growth in the next quarter. Again, he attributes it to economic uncertainty, currency fluctuations, and customers simply buying less. But that number looks familiar, doesn't it?
That's because it's pretty close to what Adobe is projecting for its entire next fiscal year. While Salesforce chose not to offer that projection, when you compare how close these two companies have come, it's not hard to extrapolate that they would have a similar year (even if they choose not to).
If the Figma deal does happen, that should give Adobe a lift, and perhaps that's why investors took a slightly more favorable view. It's fair to speculate that perhaps Salesforce will take a similar approach and make an acquisition in early 2023 for a similar revenue boost when growth is hard to come by.
It will be seen in 2023.
