It is true that both Adobe Systems (ADBE) and Autodesk (ADSK) are in the software business and support similar PEG Ratios. The PEG Ratio of Adobe is 2.72 and Autodesk is 2.25. The PEG Ratio is defined as P/E divided by five year EPS growth rate. But Autodesk is no Adobe. Autodesk reported earnings on August 22, 2013 after the market close. On the conference call, the company mentioned business model transition and comparison to Adobe. I was struck by the positive tone and enthusiasm about the transition.
Adobe stock has more than doubled from its low of $22.89 in October 2011. Yesterday the stock closed at $46.06. The big catalyst for Adobe stock has been providing software as a service.
Adobe has benefited strongly by a business model transition to software as a service. Adobe has been able to charge more under this pricing model than the previous pricing model. Every time any other company mentions such transition the stock jumps and investors draw comparison to Adobe. Autodesk was no exception. However, a little digging beneath the surface shows that Autodesk is no Adobe. Fundamentals are simply not there at Autodesk for the stock to perform similar to Adobe.
Back in 2011, one of the most popular products of Adobe was Flash. When Steve Jobs decided that Apple (AAPL) would no longer support Flash, Adobe was hit hard. Jobs was right about Flash as proven by later surrender by Adobe. Autodesk stock has never been impacted by the bravado of the likes of Steve Jobs. The point is that there has been less room for Autodesk to move up from its low comparable to Adobe’s low.
Certainly a lot of credit goes to Adobe’s decision to mostly abandon boxed versions of its software in favor of software as a service model…Read more at Seeking Alpha
