Adobe vs DocuSign: Which Cloud Stock Looks Better Right Now?
Adobe and DocuSign are two companies enjoying significant gains from the accelerated adoption of technology due to the coronavirus pandemic. Work-from-home and contactless business operations have driven the demand for cloud-based services.
According to a Fortune Business Insights study, the global e-signature market alone will reach $6.13 billion by 2026, reflecting a compounded annual growth rate of 28.77% in the 2019-2026 period.
Using the TipRanks’ Stock Comparison tool, we will compare these two cloud companies to see which stock offers the most compelling investment opportunity.
Adobe’s transformation into a SaaS or software-as-a-service company has facilitated its growth over the past few years. The company expanded beyond its creative software tools through other digital offerings like Adobe Document Cloud and Adobe Experience Cloud. Adobe Document Cloud includes PDF and e-signature solutions while Adobe Experience Cloud provides products related to online marketing and analytics.
Adobe’s revenue for the second quarter of fiscal 2020 (ended May 29) increased 14% Y/Y to $3.13 billion. Thanks to accelerated digital transformation amid the pandemic, the requirement for document signing, editing, and the company’s other cloud products spiked significantly. The company's adjusted EPS was up 34% Y/Y to $2.45.
Notably, remote working drove a sequential rise of 40% in the company’s web-based PDF services and a 175% rise in the use of Adobe Sign since the start of the fiscal year. Also, mobile usage of the company’s offerings jumped with Acrobat Reader installations rising 43% Y/Y in the first quarter while Adobe Scan installations increased 66% Y/Y. (See Adobe stock analysis on TipRanks)
On August 12, Oppenheimer analyst Brian Schwartz reiterated a Buy rating for Adobe stock with a price target of $430. In a research note, he explained “We view Adobe as a core investment holding and believe long-term software investors will be rewarded over the coming years as the company remains an underpriced earnings and free cash flow story.”
Overall, Wall Street has a bullish call on Adobe with a Strong Buy consensus based on 16 Buys versus 5 Holds and no Sell ratings. Adobe stock has risen about 36% so far in 2020, and as a result, the average price target of $437.84 signifies a 2.2% downside over the next 12 months.
DocuSign is widely known for its e-signature solution. However, its cloud software suite includes several other processes that automate the entire agreement process. DocuSign has the first-mover advantage with an impressive market share of 69.04% (as per a Datanyze report) in the e-signature space. Rivals RightSignature, SignNow and Adobe Sign have a market share of 6.28%, 5.77%, and 5.28%, respectively.
The COVID-19 led demand for DocuSign’s business reflected in a 39% rise in its fiscal 2021 first quarter (which ended April 30) revenue of $297 million. Despite strong sales, the company posted loss per share of $0.26. However, the company’s EPS was $0.12 excluding one-time items.
The company expects the strong trend in its business to continue as its Agreement Cloud and DocuSign CLM (Contract Lifecycle Management) applications will help in capturing growth beyond digital signatures. DocuSign added over 10,000 net new direct customers and 58,000 self-service customers in the fiscal first quarter, bringing the total paying customers to 661,000.
Most notably, DocuSign has tremendous opportunity in international markets, which currently account for only 18% of the revenue. It is now making strategic acquisitions to expand its product offerings. In July, DocuSign acquired Austin-based Liveoak Technologies to leverage the start-up’s technology for accelerating the introduction of its DocuSign Notary product.
In May, the company completed the acquisition of Seal Software—a provider of contract analytics and artificial intelligence technology. DocuSign believes that Seal’s AI expertise will bolster its offerings.
Last month, five-star analyst Patrick Walravens raised his price target for DocuSign stock to $233 from $150 while reiterated his Buy rating. The JMP Securities analyst stated that “The core eSignature business remains an underpenetrated, high-growth business opportunity, where DocuSign has a dominant competitive position.”
Walravens believes that the company has major opportunities in federal, mortgages and notary services. (See DocuSign stock analysis on TipRanks)
DocuSign stock has risen about 169% year-to-date. It has a consensus analyst rating of Moderate Buy based on 9 Buys and 5 Holds and no Sell recommendations. The average price target of $186.17 implies a downside of 6.8% over the next year.
Adobe and DocuSign are poised for long-term growth as the convenience of their services might continue to attract customers even when the pandemic abates. However, DocuSign has not yet turned profitable due to its growth investments. Moreover, growth prospects look fully priced in the company’s stock.
Adobe appears to be the more favorable choice based on its diverse businesses and the analyst consensus rating.
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment