Adobe is a really famous brand name. It provides crucial software to create, manage, and share digital content of different kinds. Its most favous products include Photoshop and the Acrobat Reader. With more organizations and customers spending more time and money online, Adobe has a very strong position in a very strong market.
Who or What is Adobe Inc.?
According to their slogan, Adobe operates in the area of creative, marketing, and document management software. In 2020, more than 22,500 employees worked at Adobe.
It was found in 1982 and went on the stock market in 1986 at a price of 11$. Since then, it splitted its shares several times. The split-adjusted price of the IPO would therefore be 0.17 dollars.
Imagine that you had invested 1,000 dollars at that time. Those would be worth more than 3.8 million dollars nowadays! This shows that Adobe already made some investors really rich in the past. The question is, how the future will look like.
Nowadays, Adobe has a market capitalization (value of all shares on the market) of more than 255 billion Euros. Based on that indicator, it can be considered a really large company. The earnings per share in 2020 were 9.28 Euros. For 2021, an increase to about 10.43 Euros is forecasted.
In 2020, Adobe achieved revenues of 12.87 billion dollars, which represents a 15% year-over-year growth, as well as a new record.
How Does Adobe Earn Money?
Adobe offers a wide variety of products to manage and edit pictures, documents, video, and audio. All in all, it provides a full spectrum for Marketing Departments and private consumers to create, manage, and share digital content.
The most famous products of Adobe include the Adobe Acrobat Reader and the Adobe Flash Player. Both are available for free and belong to the very basic equipment of every computer nowadays. Another famous product is Adobe Photoshop, which is the professional go-to tool for picture editing.
Besides those, Adobe offers a wide variety of further products, which are offered in product clusters.
As many software providers nowadays do, Adobe provides its software via subscription models. Those ensure a regular and stable income stream.
On the users side, they get a rich set of functionalities and tools for a moderate monthly price. Also, business users often prefer such models, as it allows them to reduce one-time costs and defer some costs into the future.
Why could an Investment into Adobe be a Great Idea?
Adobe has a rich investment proposition, which is a mix of the following:
- A strong market position
- Popular products with high quality
- Loyal customers (also because competitor products would require new skills)
- A stable and increasing number of subscriptions
- A high level of innovation / high amount of new product launches
What Risks Could be Associated with Adobe Shares?
Adobe´s strong position in its market can also be a risk. Its high market share in the areas of picture editing makes it practically a monopoly. Monopolies, however, always risk that governments take actions to increase competition. If that happened, Adobe would loose market shares and with it revenues.
Adobe´s software is surely one with the best quality on the market. However, it also has its price. There are many users that would prefer cheaper solutions even if they had less functionalities. Also, open source software and freemium models become very popular. Cheaper alternatives could therefore be preferred by private consumers and take market shares from Adobe.
Taking an objective approach to the risk of a share, we consider the share´s beta. It is an indicator that measures the relative movements (up and down) of a share compared to the overall market. If the indicator is over 1.0, the share is generally more risky than the average market. If the indicator is below 1.0, the share is less risky. This is also called, a “defensive” share.
The Beta of the Adobe share is 0.96. This indicates that the share is roughly as volatile as the overall market.
What are the Characteristics of the Adobe Shares?
First of all, it is important to mention that Adobe does not pay any dividends.
Let´s take a look at the share price development next. As already described above, the price developed extremely well since the initial public offering. How was the development in the recent past?
Last 3 months: +37%
Last 12 months: +40%
Last 3 years: +154%
From those numbers, you can see two things:
1) Adobe had a very strong growth recently
2) All the growth of the last 12 months is due to the last three months. In the 9 months before that, the share remained more or less on the same level.
Why was that? Just as all other shares, Adobe lost a huge amount of value during the first Corona lockdown. However, it was also one of the first shares to recover and to even achieve a new record high. After this happened in June 2020, the share remained on that level for several months. The recent growth started again Mid of May this year.
As a market comparison, we can take a look at the MSCI World and its recent growth.
Last 3 months: +10%
Last 12 months: +33%
Last 3 years: +49%
Especially in the last 3 months and in the long term (3 years), Adobe shows a much stronger growth rate than the MSCI World.
What trends are important for the further growth of Adobe?
Adobe is definitely acting in a field with a bright future. Its products target the digital world. Adobe will further benefit from more people and organizations creating, sharing, and managing digital documents, images, audio, and video.
Bare in mind that many of Adobe´s products are used by businesses. Yet, many businesses still need to create or expand their online presence to increase their eCommerce presence or general digital footprint. Especially Corona has accelerated that trend. Adobe is well positioned to benefit from that.
If you want to explore more companies that benefit from that trend, MongoDB might just be right for you.
Is Adobe a sustainable company?
Adobe puts quite a focus on sustainability on its website. On several pages, Adobe explains their approach to energy conservation, green building, product innovation, waste reduction, and more sustainable data centers.
Adobe also published a Sustainability Policy Statement. However, I could only find the latest version from May 2019. If you want to learn more about it, make sure to visit Adobe´s report.
Adobe also publishes a Corporate Social Responsibility Report. Similar to the Sustainability Policy Statement, I could only found the report from 2018 as the latest version. This might implicate that sustainability is not as important for Adobe as it was until 2018 / 2019.
Am I investing in Adobe?
Yes, I am buying Adobe shares based on a savings plan. I believe that it is strongly positioned in its market and that especially products such as Photoshop, the Adobe Reader, and the Flash Player are extremely popular. With them, Adobe will always have access to a very broad user base and with it the chance to turn users into paying customers.
Although there is the risk of the monopoly being impacted by governmental actions, the same risk holds true for companies such as Alphabet, Facebook, or Amazon. In fact, none of the recent actions in the Western world against “almost” monopolists had severe share price impacts. So far, the negative impact of such speculations was only short-term. And most importantly, there is currently no such debate regarding Adobe.
Finally, keep in mind that the share of Adobe just grew by over 37% in the last few months. This might be a signal that it is overpriced and will fall again to some extend. Hence, do not invest everything you want to invest in Adobe in one go, but go for a regular investment plan.