Microsoft (NASDAQ:MSFT) recently announced a new $60 billion share repurchase program. With that kind of cash, the software giant could go shopping for quite a few fellow computing service peers — including computer-aided design software leader Autodesk (NASDAQ:ADSK) which has a market cap of a little over $60 billion. Which is the better stock to buy, Microsoft or Autodesk? In this Motley Fool Live segment from “The Five” recorded Sept. 15, Fool.com contributors Jason Hall, Toby Bordelon, and Nicholas Rossolillo weigh in.
Jason Hall: Despite Jeff’s derogatory statements about my appearance, despite that, Market Musician, we will field your wonderful question. So this is an interesting one, right? There is one little thing about it I’m not sure about: Why would anyone anybody buy Autodesk, ADSK, over Microsoft? You said similar market cap. I’m not quite following you there, because they are about an order of magnitude difference.
Toby Bordelon: Doesn’t Autodesk have around a $60 billion market cap?
Hall: So this is just going back to that first question — make the case for buying Autodesk. I’m not sure if that’s something either one of you would like to do or make the counter? Nick? Toby? I’m not sure how much either one of you follow here. Nick, go ahead, weigh in.
Nick Rossolillo: I wouldn’t, because Autodesk is, like Toby mentioned, a $60 billion market cap, a similar gross profit growth profile to Microsoft at this point. With Microsoft, you get a bigger, more stable business dominance across the cloud and more traditional computing for a similar growth rate. At least not too much difference.
Hall: I’m going to make one counterpoint on it. So you also have some similarities in terms of dominance in its market. I think there’s a case that Autodesk is even more dominant than Microsoft, but certainly, in more mature industries that don’t have the same growth profiles as, like, the cloud does. But here’s the case to me for Autodesk. The company has largely transitioned to a SaaS model. It’s moved away from sell and renew, the traditional software model, but it still has some opportunity to shift a lot of its legacy customers to that SaaS model. And there are things that management is doing right now to leverage its operations and essentially double its free cash flow over the next four or five years. So even though revenue is not necessarily going to grow at a high rate, their ability to build a much more cash-cow sort of business, that’s really appealing to me. I think that’s really appealing. I’d say this. We created a construct to have a debate about the companies. I would think if you’re interested in where software is, Autodesk is a wonderful business. It is just as worthy of owning as Microsoft. But I think largely what you said is right, Nick.
Bordelon: I actually considered this when I was looking at that question, Jason. This is the first company that came to mind, as a matter of fact. Then I came across DocuSign. Well, I’d actually rather do DocuSign with my $60 billion. But yes, you could certainly make a case for Autodesk. I think there’s a reason it’s a $60 billion company. You’ve got a lot going on.
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