Which Of These Cloud Stocks Is On The Top Of Your List?
In the past year, if you wanted to make money, the easiest way was to buy cloud stocks. These companies were growing at an unprecedented pace. I won’t blame you if you thought that money rains down from the clouds. It certainly worked for some early investors who bought a list of top cloud stocks during the pandemic. After all, one of the few sectors of the economy that benefited from the pandemic-induced lockdown is cloud software.
Cloud stocks are thriving as more businesses shift their operations online. As a matter of fact, the cloud computing industry is hotter than ever. Despite the initial pullback in software spending during the start of the pandemic, there was actually an increase in cloud spending. What’s more, research firm Gartner forecasts cloud spending to increase 18% this year. When it comes to Software as a Service (SaaS) offerings, Amazon’s (NASDAQ: AMZN) usually tops the list. But when it comes to looking for the next top growth stock in the cloud computing industry, there are better candidates.
Salesforce.com (NYSE: CRM) and Adobe (NASDAQ: ADBE) are two cloud stocks that have been bringing great returns to shareholders. Both are money-making machines in the eyes of investors. And if you believe that the cloud sector is truly the future and won’t be slowed down when the world returns back to normal, then these two cloud stocks are worth the attention. But if you were to choose one to invest in right now, which cloud stock would be a better fit?
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Salesforce (CRM) Posts Record Sales
Salesforce is the top dog when it comes to customer relationship management. The company’s offerings help facilitate clear communication between businesses and their clients via the cloud. According to the International Data Corp., the company controls nearly 20% of the global CRM market. Some say innovation has been key to the company’s dominance in the market while others say it’s the first-mover advantage that allows that.
The company reported its quarterly earnings on extended trading hours Thursday. Revenue came in 20% higher compared to the year-ago period to $5.82 billion. The company reported a net income of $267 million. From the report, the company also lifted its outlook for the current year as the software provider continues to capitalize on the shift of businesses to the clouds among enterprise customers.
“We never could have predicted a year ago what was in store, which makes me incredibly proud of how well we pivoted our company to adapt to this pandemic world,” Salesforce Chief Executive Marc Benioff.
Strategic Acquisitions Help Improve Salesforce’s Top Line
The CRM leader has stayed on top of the game by making smart acquisitions. Recall that Salesforce acquired Tableau for $15.7 billion in 2019. From this acquisition, the company has incorporated some of Tableau’s capabilities onto its own to improve its overall offerings. In fact, CEO Mark Benioff recently called it the most successful acquisition in the history of the software industry. That is because it brings significant value to the company. Furthermore, the company also acquired Slack Technologies (NYSE: WORK) to boost its user interface for Customer 360. These acquisitions will help it grow its top line at 38% per year through fiscal 2026, according to management.
Some have even compared it to Snowflake (NYSE: SNOW), a similar company that Salesforce also invested in pre-IPO. Additionally, Salesforce has also backed cloud data backup service platform, OwnBackup. All these paired with its recent acquisition of Slack Technologies do make for a solid set of investments. Given the company’s massive lead in the CRM space, Salesforce should be a major player in the enterprise software market for many years to come.
Adobe’s (ADBE) Growth Numbers Are Not Being Photoshopped
Adobe is the brains behind some of the best document management and creativity software in the world. Be it an engineer, designer, or content creator, chances are you have used Adobe software.
It is also one of the most profitable cloud companies in the world. In fact, be it your pdf files or the content you saw on the internet, chances are these contents are created with Adobe’s tools. Adobe’s creative software products are popular among media professionals. Besides, the company also provides cloud-based services for enterprise customers.
From its fourth-quarter report, its adjusted revenues jumped 14% year over year to $3.42 billion. This upside was driven by strong demand for the company’s digital and creative software tools. Within that, its subscription revenues came in at $3.1 billion (accounting for 91% of its total revenues), up 20.8% on a year-over-year basis. The company also ended the fourth quarter with a strong balance sheet, showing the company’s exceptional strength.
Generating Consistent Returns Yet Reasonably Valued
Adobe’s product offerings have never been more relevant in today’s hyperconnected world. For enterprises to really stand out and capture consumer attention, they will need solutions that foster creativity and improve productivity. Much of the company’s success is for converting its products into a SaaS model. By utilizing a SaaS model, it allows users to pay a monthly subscription to have access to Adobe’s wide range of software. The business model is so good that the company has managed to increase its revenues even during such trying times.
That being said, Adobe is well diversified across many revenue streams and world regions, with excellent margins. It’s easy to forget that the company has been around for nearly 40 years. With its stellar range of products, it is looking at a massive market. With continuous product innovation, it has evolved into becoming one of the most important SaaS companies out there.
Both are highly profitable cloud computing companies and are great long-term investments. But if I had to choose one over the other, Adobe has a slight edge with lower valuation, consistent returns, and better-diversified business. More importantly, Adobe’s highly diversified revenue streams may turn out to be critical in these volatile times. On the flip side, if you believe that Salesforce has got a few more tricks up its sleeve, and could continue to gain more market share in the CRM space, then Salesforce stock may be for you.