Better Buy: Adobe vs. Salesforce

Adobe Systems (ADBE 0.52%) opened for business in 1984 and within a decade the company had released two of its trademark products: Acrobat and Photoshop. These software tools are still at the heart of Adobe's digital media business, but the company has more recently expanded into customer experience management (CXM).

salesforce.com (CRM 0.45%) was founded in 1999, pioneering the concept of cloud computing with its sales force automation software. Like Adobe, its platform has expanded over the years, becoming an extensive suite of customer relationship management (CRM) applications.

CXM and CRM products overlap to a degree, with both vying for commerce and marketing spend. In other words, Adobe and Salesforce, two of the largest enterprise software companies in the world, have slowly become competitors. So, which is the better buy today?

Image source: Getty Images.

Salesforce

The Salesforce Customer 360 platform helps clients build and maintain relationships with their own customers. It provides a range of cloud-based CRM applications aimed at improving sales, service, marketing, and commerce. Clients also have access to the Salesforce AppExchange, a marketplace of custom-built solutions.

To stay on the cutting edge, Salesforce has invested heavily in its Einstein platform, an AI engine that helps clients work more productively. For instance, Einstein automatically translates text, eliminating language barriers for service agents. It also provides predictive insights and recommendations, such as suggesting the next best action for a sales agent.

These AI-powered solutions are made all the more valuable by Salesforce's massive customer base, which currently exceeds 150,000 businesses. As more clients join and generate more data, Einstein should become more intelligent, allowing Salesforce to build new use cases. And so far, that's exactly what's happening: The company announced that Einstein made 80 billion AI-powered predictions every day in fiscal 2021 (ended Jan. 31, 2021), up from just 1 billion per day in 2019.

Salesforce has also spent billions on acquisitions, purchasing analytics firm Tableau in 2019 for $15.7 billion, data integration specialist MuleSoft in 2018 for $6.5 billion, and most recently, Slack for $27.7 billion. These mergers have made its platform more robust, adding substantial value for clients.

The combination of innovative products and smart acquisitions has powered solid financial performance.

Data source: Salesforce SEC Filings. Note: Fiscal 2021 ended Jan. 31, 2021. CAGR = compound annual growth rate.

Salesforce has strong leadership in CEO Marc Benioff, and its Customer 360 platform helps enterprises connect with their customers -- that's a critical component of virtually any business. Despite its $205 billion market cap, I believe Salesforce can be several times larger than it is today.

Adobe Systems

Adobe's business is built around three software-as-a-service (SaaS) platforms: Creative Cloud, Document Cloud, and Experience Cloud. Many of its creative products (e.g., Photoshopand Illustrator) have become industry standards, and its PDF document tools have achieved global ubiquity.

Adobe's foray into the CXM market has also been successful. Research firm Gartner recently recognized its digital experience platform as the market leader, citing its real-time personalization capabilities as a key differentiator. In another Gartner report, Adobe's marketing software outranked all rivals (including Salesforce) across all four use cases: creation, orchestration, execution, and measurement of marketing campaigns.

However, Adobe's greatest asset is the complementary nature of its SaaS offerings. Together, they create an end-to-end solution, enabling marketers to design compelling content and deliver personalized customer interactions.

That value proposition has driven strong financial performance over time.

Data source: Adobe SEC Filings. TTM = trailing 12 months.

Adobe recently announced strong first-quarter results, with the company's sales growth accelerating across all three SaaS platforms. As digital transformation continues to sweep across industries, Adobe's products should benefit from increased demand. As with Salesforce, I believe Adobe stock offers investors a good balance of potential upside and stability.

The verdict

Both of these tech companies have delivered solid financial results over the long term. Moreover, Adobe and Salesforce have built strong brands and both should benefit as digitization drives the adoption of CXM and CRM solutions.

That being said, there can only be one winner: Salesforce. Its top line is growing more quickly, and the stock trades at eight times sales, while shares of Adobe trade at 17 times sales. Salesforce dominates the CRM market, and I believe it will maintain that leadership position for many years to come.