Monthly Stock One

THE RUNDOWN

What are the products?

Adobe is all about giving creatives and businesses the tools to make stunning stuff and manage it like pros.

Adobe is like a wizard for creatives. They have this cool bundle called Adobe Creative Cloud with all the goodies like;

Photoshop (for making your pics look fab)
Illustrator (for snazzy graphics)
Premiere Pro (for awesome videos
After Effects (for fancy animations)

Creative Cloud is their subscription service where you can access all Adobe's tools and services online by paying a small amount per month. It’s like having a toolbox full of everything you need to create amazing digital content. It launched in 2012 and is now the majority of the company's revenue!

It's also most commonly known for creating the Portable Document Format (aka the PDF)

What countries does it operate in?

Adobe’s tools are used by artists, designers, filmmakers, and even businesses to make creative and professional digital content.

Adobe operates in over 40 countries worldwide from Australia, to China to the UK.

It employs close to 30,000 people (which is the same number of volunteers at Glasto this year 😲)

Who is the CEO?

Adobe's CEO is Shantanu Narayen. He has been with Adobe since 1998 and became CEO in 2007.

Under his leadership, Adobe has transitioned to a subscription-based model and expanded its product offerings significantly.

He started his career at Apple, where he worked on product development and then had various roles within the tech space before joining Adobe in 1998.

The company was actually founded back in 1982 but both founders have since passed away.

How much stock does the CEO own?

He owns approximately 250,000 shares of Adobe stock which is $140 million* so, someone is doing pretty well!!

This is less than 1% of the company though!

*as at 12th July 2024

THE NITTY GRITTY

What industry does it operate in? And what is it's market share?

Adobe's official industry classification is ‘software’ which is probably one of the fastest growing industries right now.

Because Adobe has various products that operate in different areas of the software market, it is hard to get a definitive size of its market share. However, in 2024, its flagship product, Adobe Photoshop leads the global graphics software market with an approximate 42% share.

Is the industry growing?

If we zoom out and look around us, more and more people are moving online and living more and more digitally. This creates increasing demand for software products (exactly what Adobe does).

Adobe states its Total Addressable Market (TAM) as $293 billion in 2027 which is up from $205 billion in 2024. That is growth of 42% over three years. That implies Adobe's industry is growing by 13% which is a great industry to be operating in.

Its revenue is $19 billion so it still could increase its revenue 15x before it reaches its full addressable market - plenty of growth ahead!

Who are the key competitors? How are they doing? Are any of them public?

Adobe's biggest (and newest) competitor is, Canva. It is not a public company though so its hard to get a lot of financial information..

Here are some key comparisons:

Revenue: Adobe’s annual revenue for 2023 was approximately $19.4 billion, whereas Canva’s revenue figures are not publicly disclosed but are considerably lower
User Base: Adobe has nearly 30 million Creative Cloud subscribers, while Canva reported over 16 million users.
Valuation: Adobe’s market cap is around $200 billion, whereas Canva’s valuation was about $26 billion as of the latest funding round.

THE FINANCIALS

Adobe primarily operates on a subscription-based revenue model (Creative Cloud is 60% of revenue), which has become increasingly common in the software industry. This means it has good visibility on its revenue as people pay a recurring monthly amount.

Its revenue has grown from $4.1 billion (10 years ago) to nearly $20 billion today - that's 17% growth on average per year!

Its revenue has grown from from $17.6 billion in 2022 to a whopping $19.4billion 2023 in revenue 2023. That's 10% growth.

Are the margins expanding?

Yes ... In FY (financial year) 2023 operating margins were 34%, vs 34% in FY2020.

What are the financial projections?
FY24 is expected to be ~$21.5 billion in revenue

Sure, but does it have a good history of achieving these?

Yes, it has historically bet Wall Street expectations (green flag!)

How much cash does it have?

Adobe is 'net cash' which means it has more cash than debt. It has total cash of $8 billion and total debt of $4 billion which means it has net cash $4 billion - big green flag!

THE SHARE PRICE

YEAR TO DATE (YTD):

ADBE -2% vs Index (S&P 500) +18%

OUTPERFORMANCE OF 20%

PAST 12 MONTHS: ADBE +14% vs Index (S&P 500) +27%

UNDERPERFORMANCE OF 13%

Adobe also has a $25billion share repurchase underway

DO THEY PAY A DIVIDEND?

Adobe does not currently pay a dividend to its shareholders. Instead of returning profits to shareholders through dividends, Adobe reinvests its earnings into research and development, expanding its product offerings, and other strategic initiatives aimed at driving future growth. This approach is common among technology companies that prioritize innovation and expansion over regular dividend payouts.

THE RED FLAGS

Think: Industry, competitors and company specific.

The BIG PICTURE Flags:

The main threat (and opportunity) in the software industry is AI. Rapid technological advancements and the emergence of new design tools that incorporate AI could render Adobe's current offerings less relevant, therefore impact revenue and profit.

The Industry Flags:

Adobe faces significant competition from companies like Canva, Corel, and Affinity. The rise of user-friendly, cost-effective alternatives could impact Adobe's market share and pricing power.

Canva is best for quick, simple design tasks and beginners, while Adobe is suited for detailed, professional-grade design work but targets a less professional graphical user.

The Adobe Specific Red Flags:

With such innovative products, in order to stay ahead of the pack, Adobe needs to ensure it has really good Intellectual Property (IP) protection on its products.

It also has pretty high operating margins to protect.

THE VIBE CHECK

The Good Vibes

Subscription based model

The good vibes

Share repurchase underway

THE BAD VIBES

CEO doesn't own a lot of stock