Economic worries plagued investors throughout the year, and the stock market fell as a result. The S&P500 fell 21% from its peak, and the Nasdaq Compound is down 32%, putting both indices in a bear
Economic worries plagued investors throughout the year, and the stock market fell as a result. The S&P500 fell 21% from its peak, and the Nasdaq Compound is down 32%, putting both indices in a bear market. But with this chaos comes a silver lining for patient investors.
Software giants Selling power (RCMP 2.05%) and Adobe (ADBE 2.21%) saw their share prices plunge 48% and 54% respectively. Neither stock has suffered a bigger loss at any time in the past 10 years, meaning investors now have a once-in-a-decade buying opportunity.
Here’s what you need to know.
Salesforce: a leader in customer relationship management (CRM) software
Salesforce has been a pioneer from day one. It launched a cloud-based customer relationship management (CRM) platform in 1999, becoming the first company to adopt cloud computing at scale.
Today, its platform includes productivity software for marketing, commerce, sales, and customer service, as well as tools for workflow automation, data analytics, and artificial intelligence ( AI). Salesforce also offers several industry-specific CRM platforms, with tools tailored to end markets such as consumer goods, financial services, and media. This go-to-market strategy reduces friction and accelerates the time to value creation for customers.
Salesforce has transformed its capacity for innovation into a powerful brand. It captured 24% market share in CRM software last year – more than the next four competitors combined – marking its ninth consecutive year as the industry leader.
Financially, revenue grew 25% to $29.3 billion in the past year, although free cash flow (FCF) only jumped 4% to 5, $7 billion as operating expenses grew faster than revenues. That said, investors should expect FCF growth to accelerate in the future. Management says its GAAP operating margin will reach 3.6% this year, up from 2.1% last year.
Looking ahead, investors have good reason to be optimistic. Salesforce estimates its total addressable market (TAM) at $290 billion in 2026, which means it has captured only about 10% of its future TAM. Additionally, the shares are currently trading at 5.5 times sales, a bargain from the five-year average of 8.8 times sales. That’s why this growth stock is worth buying today.
Adobe: leader in creativity and digital experience software
Adobe specializes in digital media and digital experience software. Its digital media business includes Adobe Document Cloud, a suite of PDF and e-signature tools that helps businesses replace paper-based processes with digital documents. The digital media business also includes Adobe Creative Cloud, a collection of creativity software featuring industry-leading products for image and video editing, vector graphics and cinematic special effects, among others.
Adobe complements these solutions with its digital experience business. Adobe Experience Cloud is a suite of analytics, marketing, and commerce tools that helps businesses transform customer data into personalized experiences. Earlier this year, a research company Gartner recognized Adobe as a leader in digital experience platforms, citing better ability to execute and more comprehensive insight than any other vendor.
Financially, Adobe missed revenue estimates in the last quarter and its 2023 guidance fell short of expectations, primarily due to an estimated four percentage point headwind from the strong dollar. . On the positive side, unfavorable exchange rates should normalize over time, and Adobe has still delivered respectable results over the past year. Revenue rose 14% to $17.2 billion and FCF climbed 8% to $7.1 billion. This equates to an impressive FCF margin of 41%.
Looking to the future, Adobe pegs its potential market at $205 billion by 2024—digital media is $95 billion and digital experience is $110 billion—and investors have good reason to be skeptical. be optimistic. Adobe is already a leader in several creativity categories, but the company is also gaining traction with newer products, like its Substance suite of 3D design apps. This is particularly noteworthy because it positions Adobe as a key player in the metaverse.
Additionally, Adobe recently announced plans to acquire design collaboration platform Figma. It will pay $20 billion in cash and stock, but Figma is growing like wildfire. The company is expected to add $200 million in new annualized recurring revenue (ARR) this year, surpassing $400 million in total ARR by the end of 2022. Additionally, average spend per Figma customer is growing faster than 50% per year, and Figma puts its addressable market at $16.5 billion by 2025.
With that in mind, Adobe shares are currently trading at 8.7 times sales, a steep discount from the five-year average of 15.3 times sales. This creates a nice buying opportunity, and patient investors should seriously consider adding a few stocks of this growth stock to their portfolio.
Trevor Jennewine holds positions at Adobe Inc. The Motley Fool holds positions at and recommends Adobe Inc. and Salesforce, Inc. The Motley Fool recommends Gartner and recommends the following options: January 2024 long calls at $420 on Adobe Inc. and short calls from January 2024 to $430 on Adobe Inc. The Motley Fool has a disclosure policy.