Is Adobe A Buy?

Pratik is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Digital media is touching lives everywhere in the form of audio, video, electronic displays and augmented reality. Providing creative solutions to enhance this form of media experience is what Adobe Systems (NASDAQ: ADBE) delivers. Making photos better, bringing fictional characters to life, storing, editing and sharing are a few areas of its expertise. The company posted its fourth quarter results recently and also discussed its future plans.

Understanding business and revenue streams

Revenue stood at $4.4 billion with an annual growth rate of 9%. The fourth quarter contribution was $1.15 billion coming from Digital Media and Digital Marketing.

Digital Media is a major source of revenue, clocking $810 million in the fourth quarter by serving a large set of customers with customized product offerings. The digital media segment performed well because Creative Cloud launched its individual product offering in May. Since then it has provided three updates. The software called Lightroom has been added to Creative cloud. It was one of the most awaited additions to Creative Cloud. The software is an end-to-end solution for photographers. It helps in importing, managing and showcasing photographs. 

The response for Creative Cloud in the market has surpassed the company’s expectations which were evident by the 13% growth in total creative units. By mid-December, the segment had 326,000 paid memberships and 1 million trial members. Hence, the company has some fixed revenue in future.

In Document services, Adobe offers Acrobat which creates a file into a Portable Document Format (pdf). There is no substitute for Acrobat in the market and Adobe keeps updating it to bring in more paid memberships. The revenue from this segment grew to $210 million. The company also launched Acrobat 11 this year which is expected to bring more revenue.

Digital marketing is the use of internet connected devices to engage with consumers and other stake holders. Adobe’s digital marketing is established as a leader in analytics. The number of transactions in analytics this year was 1.74 trillion, up by 17%. This business is doing well because of its use in mobile applications. The mobile transactions were up by 18% and with growing importance of phones it seems to do even better.

What are competitors doing?

On one hand, Adobe had an effortful quarter and on the other, competitor Autodesk (NASDAQ: ADSK) is also making a number of moves. Autodesk acquired assets of HSM Works Aps and Inforbix. Autodesk is a world leader in 3D design, engineering and entertainment software. Through its acquisition of HSM assets, it will bring hardware expertise into the business. Inforbix would bring cloud based data software that aims at improving decisions. The annual results of the Autodesk are still awaited.

Also Salesforce.com (NYSE: CRM) recently provided the technology support to Team Obama in elections. Since then, the company has gained a lot of buzz. It is one of the fastest growing tech stocks around. It provides the best software for customer relationship management. The company rolled out integration between Sales cloud and Work.com this week. It will be made available to customers in first half of 2013. The company is awaiting results and one can expect decent numbers.

Plans for 2013

Basically in this field if a company has nothing new to offer on the table, it losses the battle. Considering the great demand and member queries on Adobe’s Creative Cloud, the company is now shipping Creative Cloud for teams. It has added features of expert support and online training. The company is also planning to launch Creative Cloud for Enterprise in 2013. They are ahead in their target to create a recurring business of 40%. It will be achieved by 2013 instead of 2014. Adobe is all geared up to enter 2013 with a bang. Adobe surely knows how to keep members engrossed and the same time keep them craving for more. Investors should definitely notice this growing company in order to make their portfolio shine.


Prat369 has no positions in the stocks mentioned above. The Motley Fool has the following options: long JAN 2013 $50.00 puts on Salesforce.com. Motley Fool newsletter services recommend Adobe Systems and Salesforce.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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