Adobe Stock Analysis & Deep Dive

Finally an interesting buying opportunity

Adobe is one of these companies that I wanted to add to my portfolio for a long time. Most of the last years it was too expensive for my taste and I had to watch the increase in the share price from the sideline. Luckily for us, all shares eventually come down to a reasonable valuation and when they do, it’s time to buy them.

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How to identify outstanding companies

What does Adobe do?

Adobe is a US-based company with headquarters in San Jose, California, and employs about 29.000 people.

Adobe’s business is split into 3 different segments.

Adobe Creative Cloud:

I am sure most of you have heard of Photoshop, but Adobe Creative Cloud is home to many more products. Illustrator for icon design; Premiere Pro the video editor; InDesign for magazines, books, and PDF publishing to name a few.

This segment had 10.5bn of revenue in 2022 while growing 10% YoY and contributed 61% to the overall revenue of the company.

Since switching to a subscription model, solutions like Photoshop have become a lot more affordable. Now users pay a monthly fee of 20$ compared to a couple of hundred dollars once in the past.

Adobe Document Cloud:

The document cloud is the smallest segment with 2.4bn of revenue in 2022 while growing 21% YoY and contributing 14% to the overall revenue of the company.

The document cloud focuses on all forms of creating, editing, signing, and workflows around PDFs.

Some people believed that the competitor and one trick pony for e-signatures Docusign is worth $61bn at the peak of the corona bubble in 2021. As a comparison, Adobe is currently trading at a market cap of $157bn and has a wide range of products and solutions for customers.

Adobe Experience Cloud:

While most consumers are familiar with Adobe Photoshop and Adobe Acrobat Reader, many are not aware, that they are at least passive users of the Experience Cloud.

Sitting between the more well-known segments of Adobe in terms of revenue, the Experience Cloud had 4.4bn of revenue in 2022 while growing 14% YoY.

Adobe describes the experience cloud with these nice words, which say everything and nothing at the same time: “set of digital experience tools that let you give your customers what they want, exactly when, and how they need it”.

The experience cloud consists of different offerings, which I will describe briefly:

Experience Platform: Collect and connect data about customers to build customer profiles. This data is stored and made available for AI-driven insights and further use in additional programs.

Data, Insights, and Audiences: Data-based insights into the customer profiles in real-time, made available for the whole team and machine learning algorithms.

Content and Commerce: Personalized web content and mobile applications.

Customer Journeys: Manage cross-channel campaigns.

Marketing Workflow: enable teams to work together on the same campaigns.

To summarize the Experience Cloud: All these programs are used to create detailed customer profiles and then offer an individualized website/app in order to reach higher sales conversion rates. On top of that, the marketing and sales team can work together in a workflow-based approach and have a cloud-based store of all the relevant assets.

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MOAT:

I am looking for a business with a strong moat. In the best case, we even have some alligators and crocodiles in our moat.

If you ask anybody who is serious about photography and editing pictures which software they use, they will answer Photoshop. Ask a random person on the street, which PDF viewer and editor they use, and you will most likely get the answer: Acrobat Reader.

Once you learn how to use Photoshop, you are very unlikely to change to a different software and learn how to handle it from scratch. Since Photoshop is the default for image editing, it is already being taught in universities and the graduates will naturally apply their skills also in their professional lives.

Adobe’s Experience Cloud is the leader in the 2023 Magic Quadrant for Digital Experience Platforms.

Even regarding the all-present topic of AI, Adobe has something in store for you. Midjourney made text-generated images popular and Adobe Firefly which is currently available in a Beta version does the same. This will change how computer-based images are created forever. The main benefit of Adobe Firefly will be the safe choice for commercially used generated content since Firefly is trained on licensed content and will be integrated into Adobe’s other software solutions.

Check out this video to get an idea of how powerful generative AI already is:

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