Adobe Systems Inc. - Stocks

Instrument description

Information technology has advanced at a rapid pace, and now numerous companies provide premier software to ordinary users and high-end users to help them fulfil their tasks. Adobe is one of the pioneer company that designs and develops software for knowledge workers, creative professionals, designers, small/medium business, and large enterprises.

Adobe was founded in 1982 in America and now considered one of the largest software development company in the world. Adobe offers a wide range of software for different segments of the market. The two most iconic and trademark software of Adobe is ‘Adobe Photoshop’ and ‘Adobe Reader’.

Previously known as Adobe Systems, now it is Adobe Inc. (ADBE) and is headquartered in San Jose, California. The company has over 22,600 employees who are working in offices all across the world in places such as Canada, Japan, China, Brazil, Korea, Italy, Australia, France, UK, Germany, and Mexico.

The shares of Adobe are traded on the NASDAQ Exchange with the ticker symbol of ‘ADBE’. Adobe is a prominent business company that features on the NASDAQ-100 Index, the S&P-100 Index, and the S&P-500 Index.

History of Adobe

John Warnock founded Adobe along with his partner Charles Geschke after both of them quit from Xerox PARC to develop and sell the PostScript page description language. The name ‘Adobe’ is not random and holds significance as the name comes from ‘Adobe Creek’ in Los Altos, California, that ran behind the house of founder John Warnock.

Warnock was expert in the interactive graphics research while Geschke researched graphics and computer science. The two were not satisfied working at Xerox as their product and service ideas were stuck in the initial stages of research. The first project or product of Warnock and Geschke was ‘PostScript’ which was a computer language that communicated with output devices such as printers. PostScript was a breakthrough as it provided details of the digital pages and also included features such as showing lines, images and characters.

PostScript was seen as an indispensable product by the advertising agencies that used it for their marketing purposes. Apple integrated the PostScript language into its LaserWriter printer in 1985 and also invested 19% in Adobe. In the following year, Adobe doubled its employees and developed more than 5000 PostScript applications for every hardware and software configuration. The surge in PostScript success allowed Adobe to go public in 1986 and post income of $3.6 million and $16 million in revenue by the end of the year.

The first milestone for the company was introducing the PDF (Portable Document Format) and the Adobe Acrobat Software in 1993. Adobe acquired rival company ‘Macromedia’ through a stock swap deal in 2005. The acquisition allowed Adobe to add numerous products such as Adobe Dreamweaver, Adobe Connect, Adobe Fireworks, Adobe Flash, Adobe Flex, and Adobe HomeSite. In an acquisition or merger, a stock or share swap means company paying stock rather than cash. The Adobe Media Player was released in 2008.

Adobe was first incorporated in California in 1983, and then later reincorporated in 1997 in Delaware as Adobe Systems Inc. According to statistics, an estimated 200 million PDFs are opened on Adobe Acrobat Reader every year, and there are staggering more than 155 trillion transactions every year on the Adobe Experience Cloud.

Current Business and Investment of Adobe

Currently, Adobe operates in three main segments that includes Digital Media, Digital Experience, and Publishing.

• Digital Media offers cloud services and a chance for users to easily download and install various latest creative software and tools for their needs such as Adobe Photoshop, Adobe Illustrator, Adobe InDesign, Adobe Premiere Pro, Adobe Acrobat, and Adobe Photoshop Light room.
• Digital Experience provides digital marketing solutions which include analytics, media optimization, social media marketing, cross channel campaign management, targeting, premium video delivery, monetization, and overall digital media management.
• Publishing unit offers products and services such as technical document publishing, eLearning solutions, premium printing, and web application development.

The core mission of Adobe is to offer diverse and extraordinary digital solutions that allow business companies big and small to streamline and improve their Digital experience. Adobe is recognized as the leader in the ‘paper to digital transformation’, and since its inception, the ‘PDF’ has been used by millions of users. It is still the main feature of Adobe’s Cloud Document Business.

Adobe has an adopted a subscription-based model that not only suits the company but thousands of common and professional users. The unique positioning of its products and services allows managers to cope with challenges and uncertainties easily. The recurring revenue model allows the company to predict positive outcomes in the second quarter despite the Covid-19 concerns that have affected nearly every multinational company.

The Creative Cloud unit of Adobe recorded revenue double from $3.2 billion in 2016 to $6.5 billion in 2019. The extensive growth in revenue led to an increase in stock value and positive trading trends over the years. The company has sights to further improve and expand its business with a Total Addressable Market (TAM) in 2023 expected to be worth $31 billion. TAM is also called Total Available Market and refers to the opportunity available if the product or service achieves 100% market share.

The recurring revenue of the Adobe Experience Cloud also doubled from $1.6 billion in 2016 to $3.2 billion in 2019. The Adobe Experience Cloud is said to be Adobe’s biggest opportunity to increase its revenue with estimated TAM value of $84 billion.

Adobe has made more than 50 acquisitions in its business history, and some of the notable ones are

• Magento Commerce which is a popular cloud commerce platform for $1.7 billion
• Omniture, an online web analytics and marketing firm for $1.8 billion
• Marketo, an marketing automation software company for $4.8 billion

Risk and Potential in Adobe Business Environment

Adobe’s main source of revenue generation is through its official website and direct sales. The company also reach and connects with clients and customers through retailers, software developers, distributors, original equipment manufacturers (OEMs), and independent software vendors. The company promotes its products and services through online advertising, social media platforms, trade shows, conferences, and events.

Adobe is a customer-centric business approach, and it is evident by its numerous purposeful software and innovative tools that allows common users and professionals to manage their work. The Cloud-based services have allowed Adobe to grow significantly over the years and make it one of the biggest software company in the world. The SWOT Analysis of Adobe is

• Strengths

The core strength of Adobe is its subscription-based model that allows individuals and businesses to download and install the latest versions and updates of the Adobe products. As Adobe is a global brand with reach to every part of the world, the subscriptions increased exponentially and added to the revenue. Adobe has a wide range of products and services that caters to the broad and niche business and individual purposes. The company offers the best digital tools and has made a name in print and publishing business as well.

• Weaknesses

The main weakness in Adobe’s business operations is its debt restrictions that limit the flexibility of the company. The debt constraints negatively impact on the cash flow and growth of the company.

• Opportunities

We live in a digital age, and digital technology has advanced at a rapid pace in the last five years, which has resulted in everyday use of smartphones and smart applications. The digital expansion will suit the business functions of Adobe that already offers products and services for different digital platforms. Adobe is looking to increase its consumer base and revenue in the coming years with its Creative Cloud services.

• Threats

Adobe faces tough competition with rival software companies such as Microsoft, Corel, Google, Fixit, and Oracle. Many of the companies are open source which adds to the competition. For instance, the Digital Media of Adobe faces a challenge from Facebook, Twitter, and other social media platforms. As the company mostly offers its products and services through online methods that also raises the issue of illegal use of its products and fraud from some customers.

If you considering to invest in Adobe’s stocks, then you should consider the current performance and future growth of the company. The company promises for growth in upselling to current customers, new clients and customer acquisitions, and move from license users to subscription users.

Stock Analysis of Adobe

Adobe started trading publicly back in August 1985 on the NASDAQ, under the ‘Technology Services’ Sector and the industry is ‘Packaged Software’. The initial stock was offered at $11 per share. The share value stood at $906 on June 1, 1999, and in the following year and a half, the company grew nearly five times, and the share price was $41 in November 2000. But in August 2002, the value per share dropped to $8.35. There have been regular fluctuations over the years, but Adobe’s stock value is on forward momentum and reached $383 on February 19, 2020.

The Coronavirus pandemic has affected every major and minor business company, but Adobe is one of the few tech giants that has not shown losses as of May 2020. The stocks reached an all-time high value of $386.74, and the outlook for investors seems quite promising who take a long multiyear approach when managing their portfolio.

Adobe released the first quarterly report in early March 2020 where revenue touched $3 Billion. The sales were at $3.09 billion, which showed a 19% YoY increase. According to segments, Digital Media posted a 12% YoY increase with $2.1 billion and Digital Experience rose with 15% and recorded nearly $860 million. The company speculates an increase in the second quarter as compared to the first quarter. Apart from the $3.175 billion in the second quarter, there is an additional $385 million due to annualized recurring revenue (ARR).

Looking at the stock chart of Adobe, the investors are sure that the stock would be valued at $285 per share. The support level has been active on three occasions, and every time the shares have bounced back. The swing traders and near term investors can look to profit by buying the shares at $285 and then go from trading Long to Short when the resistance level is reached.

Due to the ongoing Covid-19 outbreak that is affecting the USA the most, it can be not easy to speculate the share price of Adobe, but the businesses have started to reopen or work remotely. As the Coronavirus pandemic has influenced every micro and macro-economic factor, so a fundamental analysis of Adobe is not feasible however the best way is to try to predict the price movements is by using technical analysis tools such as price charts.

The information above is for education purposes only and cannot be considered as investment advice. Past performance is not reliable indicator of future results.