Let us compare Infosys and Adobe. They have a close enough top line of $7.129 billion and $7.740 billion respectively in the last 6-months.They also have a very similar cash in hand position. But, they couldn’t be more different businesses. I compare earnings, stock performance, total employees and employee compensation for both companies in this post.

Earnings comparison

Here is a comparison of their last 6-month earnings as reported on their investor pages.

Sources:

Adobe earnings: https://www.adobe.com/content/dam/cc/en/investor-relations/pdfs/71601202/a0m2p5h3fw96x8.pdf
Infy earnings: https://www.infosys.com/content/dam/infosys-web/en/investors/reports-filings/documents/investor-sheet.xls
Adobe is also able to pay lesser taxes that Infosys on a 9% larger revenue

People comparison

It is also important to compare the number of employees in both companies. Adobe employs 22,000 people, Infosys employs approximately 2,59,000 people. This 11.7 times the number of people for almost the same revenue.

A great software services company is never as big a cash generator as a great software product company.

Compare at the PAT number
Compare at the Cost of sales number

This is why investors prefer product companies and have been handsomely rewarded for their risk taking in Adobe. Here is a comparison of the stock prices of the two companies over the last 5 years.

Stock performance comparison

Adobe stock as delivered more than three times the absolute returns on infy stock in the last 5 years.

INFY 5 year CAGR is 8.8%

ADBE 5 year CAGR is 38.8%

This is the reason why, generally speaking, product companies are able to pay more to their employees. This includes stock awards, which sometimes become much more important than the fixed salary.

Employee compensation comparison

Remember, the path to wealth is by owning assets. Owning stock in various companies and getting stock awards is a big contributor to wealth especially if you pick the right stock or the right basket of stocks. So, always prefer a job that gives you some ownership in a company than just a salary.

Thankfully this is happening in software companies now, the change has been far too slow. Infy only offered stock to approximately 6500 “mid-level” employees in 2019 . This is probably around 25% of the workforce. Even then the amount of money distributed in stock options in a services company is minuscule when compared to a US based product company.

Share buyback policy comparison

Infosys’ 2021 annual report states, “In line with the Capital Allocation Policy, the Board, at its meeting held on April 14, 2021, approved the buyback of equity shares, from the open market route through the Indian stock exchanges, amounting to ` 9,200 crore (Maximum Buyback Size, excluding buyback tax) at a price not exceeding ` 1,750 per share (Maximum Buyback Price), subject to shareholders’ approval in the ensuing Annual General Meeting (AGM).”

Adobe on the other hand bought back 7300 crore rupees ($1 billion) of its stock just in Q2, 2021!

Adobe also paid $250 Million in stock related compensation in Q2, 2021 alone.

This is a stark contrast between the two companies. And Infy is probably be one of the better services companies in India. It is also interesting to compare stock granted to the CEO of each company.

As per Infosys’ 2021 annual report the CEO of Infosys got 30.99Crore ($1.5M) in stock last year. Infy CEO took 47% more than last year.

Accordingly to SEC filings, the CEO of Adobe got $43M in stocks in 2020 . Adobe CEO did not raise his base salary from 2019 to 2020 and only took 10% more than last year.

However, CEO of Infosys makes 689 times average median salary of its employees. CEO of Adobe only makes 266 times the median salary of Adobe employees.

PM Talk - Anubhav’s Newsletter on Product Management

Services company vs Product Company