Is Adobe (ADBE) stock a good buy?

Is Adobe (ADBE) stock a good buy?

➡️ This is a step-by-step stock review to determine if Adobe (ADBE) stock is a good buy. In this article, we’ll help you understand the company, where the company is going, the competition, and the leadership. This way you can make a more confident investment decision.

Adobe is a software company founded by John Warnock and Charles Geschke in 1982 and based in San Jose, CA. The company has office locations in the US, China, India, Japan, Taiwan, Hong Kong, Korea, Singapore, Australia, Belgium, Ireland, Netherlands, Sweden, Denmark, Poland, Italy, France, UK, Spain, South Africa, Brazil, and more.

Table of Contents

Step 1: Tykr Rating

➡️ Goal: When you look at a stock, the first step is to look at the financials. Fortunately, Tykr does this for us automatically. The higher the score, the stronger the financials and the safer the investment. The higher the MOS, the higher the potential returns you can make.

  • Summary: Watch
  • Score: 61/100
  • MOS: 0%
  • Share Price: $373
  • Fair Value: $439

Step 2: Adobe Company History

➡️ Goal: It’s important to know the company’s history. This helps us understand the various revenue streams, if they acquired other companies, how they grew through difficult times, and how they separated themselves from the competition.

  • In 1982, Adobe was founded and named after the Adobe Creek in Los Altos, CA.
  • John Warnock’s wife, Marva Warnock, designed the Adobe logo.
  • Their first product was Adobe PostScript which was a printer software.
  • In 1982, Steve Jobs attempted to buy Adobe for $5M but Warnock and Geschke declined. Their investors urged them to work something out with Jobs, so they agreed to sell him shares worth 19 percent of the company. Jobs paid a five-times multiple of their company’s valuation at the time, plus a five-year license fee for PostScript, in advance. This purchase made Adobe the first company in the history of Silicon Valley to become profitable in its first year.
  • By 1987, PostScript became the industry-standard printer language with more than 400 third-party software programs and licensing agreements with 19 printer companies.
  • Adobe’s second product was Digital Fonts which they released in a proprietary format called Type 1. Apple developed a competing standard called TrueType.
  • In the mid-1980s, Adobe entered the consumer market by releasing Illustrator, a vector-based drawing program for Apple Macintosh.
  • In 1986, Adobe went public.
  • In 1986, they released Photoshop.
  • In 1991, they released Premiere.
  • In 1993, they released PDF. Today, PDF is an international standard document type with ISO 32000-1:2008.
  • In 1994, they acquired Aldus Corporation and added PageMaker and After Effects to their product library.
  • In 1995, they added FrameMaker, the long-document DTP application, to its product library.
  • In 1996, they acquired Ares Software.
  • In 2003, they purchased audio editing and multitrack recording software Cool Edit Pro from Syntrillium Software for $16.5M. Adobe renamed Cool Edit to Adobe Audition.
  • In 2005, they acquired Macromedia in a stock swap for $3.4B which added ColdFusion, Contribute, Captivate, Breeze, Director, Dreamweaver, Fireworks, Flash, FlashPaper, Flex, FreeHand, HomeSite, JRun, Presenter, and Authorware to Adobe’s product line.
  • In 2008, they released Adobe Media Player.
  • In 2008, they discontinued work on its HTML editor, GoLive, and decided to place priority on Dreamweaver as the flagship coding platform.
  • In 2008, they launched Acrobat which allowed PDF editing.
  • In 2009, they acquired marketing and analytics company Omniture for $1.8B.
  • In 2010, continued arguments went back and forth between Adobe and Apple because Adobe Flash wasn’t compatible on the iPhone or iPad due to poor security. This triggered the rise of HTML 5, a lightweight markup language used for structuring and presenting content. 
  • In 2011, Adobe acquired DemDex which added audience-optimization software to its online marketing suite.
  • In 2011, at the Photoshop World 2011 event, Adobe unveiled a new mobile photo service, known as Carousel. This allows users to adjust adust and fine-tune images on all platforms. Carousel was later renamed Adobe Revel.
  • In 2011, Adobe acquired Nitobi Software, the maker of the mobile application development framework PhoneGap.
  • In 2011, Adobe announced they would cease the development of Flash in favor of HTML 5.
  • In 2012, Adobe opened a new 280,000-square-foot corporate campus in Lehi, Utah
  • In 2013 Adobe made a smart business move that many other businesses learned from. They changed their product from a physical CD one-time / lifetime purchase to an online subscription. In other words, they turned into a SaaS (Software as a Service). Adobe Cloud was created, which is a low-cost online subscription service that allows customers to download and use whatever Adobe software applications they want. Guess what happened to the share price? Yes, it took off like a rocket. In 2013 the share price was $43. By 2016 the share price went to $100. By 2018 the share price went to $245. By 2021 the share price went to $640.
  • In 2018, Adobe and NVIDIA established a strategic partnership to work on Sensei AI which powers Adobe Creative Cloud. This allows users to find what they need faster, reduce steps in their creative process, and apply their most commonly used effects with ease.
  • In 2018, Adobe announced its acquisition of the marketing automation company, Marketo.
  • In 2019, Adobe officially changed its name from Adobe Systems to Adobe Inc.
  • In 2019, Adobe announced its acquisition of 3D texturing company Allegorithmic.
  • In 2020, the annual Adobe Summit was canceled due to Covid-19. They decided to host the event online which drew over 21 million video views and 2.2 million visits to the event website.
  • In 2020, Adobe banned political ads on its Digital Advertising Platform.
  • In 2020, Adobe announced it would acquire marketing collaboration software, Workfront for $1.5B.
  • In 2021, Adobe announced it would acquire the cloud-based video collaboration platform for $1.2B.
  • In 2021, Adobe announced it would add payment services to its e-commerce platform which enabled merchants to accept payments with credit cards and PayPal.
  • In 2022, Adobe announced it would buy cloud-based design software company Figma. As of March of 2023, the deal still is in progress. 

Step 3: Adobe Business Model

How does Adobe make money?

➡️ Goal: It’s important to know how a company makes money. A mature business model has multiple streams of revenue which allow the company to weather downturns in the economy.

Adobe generates through 3 major channels.

  1. Digital Media – 73% of revenue
  2. Digital Experience – 25% of revenue
  3. Publishing and Advertising – 2% of revenue

The Digital Media products include:

All platforms listed below are found on the Adobe Creative Cloud which is a B2C and B2B SaaS platform.

  • Photoshop – Graphic design software.
  • Illustrator – Graphic design and illustration software.
  • InDesign – Print software for magazines, newspapers, catalogs, books, etc.
  • Premiere Pro – Video editing software.
  • After Effects – Video animation software.
  • Dreamweaver – Robust software coding which supports multiple languages.
  • Animate – Software coding that generates animations.
  • Digital Publishing – Allows enterprises and ad agencies to transform print into digital reading experiences for tablets and smartphones.
  • Typekit – Thousands of fonts
  • Behance – Social community to showcase and discover creative work
  • Acrobat – Create, review, sign, track, and edit PDFs

The Digital Experience products include:

All platforms listed below are found on Adobe Experience Cloud which is an Enterprise B2B SaaS platform.

For context, small businesses will use platforms such as WordPress, Squarespace, and Wix to build websites but large businesses use AEC (Adobe Experience Cloud). The price tag on AEC can cost hundreds of thousands of dollars if not millions of dollars per year. The costs are based on a number of factors such as number of pages, number of products sold, number of images, etc.  Those of you who know me, know that I love enterprise software. Typically, when a large business signs an enterprise contract, they are not “giving it a try” for a month or two. Contracts may be signed and committed to for 7 – 10 years. That means Adobe is generating a significant amount of cash flow for a predictable time into the future. It’s a brilliant revenue model.

  • Real-Time CDP – Real–Time customer data collection to understand browsing and buying behavior.
  • Journey Optimizer – Orchestrate real-time customer journeys to create a more engaging user experience on the platform.
  • Customer Journey Analytics – Connect every customer touchpoint and visually explore journeys in real-time.
  • Analytics – In depth-analytics, versatile reporting, and predictive intelligence to further understand buying behavior.
  • Marketo Engage – Marketing automation includes lead magnets, email marketing, CRM, and automated chatbots.
  • Workfront – Project management tools.
  • Commerce – Large-scale e-commerce engine.
  • Experience Manager Sites – CMS (Content Management System) for managing the website.
  • Experience Manager Assets – DAM (Digital Asset Management) which organizes all photos, PDFs, and other documents attributed to products listed in the e-commerce website.
  • Campaign – Manage multiple email marketing campaigns at once.
  • Target – AI-powered testing to help you understand what customers want most.
  • Audience Manager – Segment audiences and uncover insights to take action in real time.
  • Learning Manager – Easily create on-brand learning experiences for both customers and employees.
  • Experience Manager Guides – Improve the efficiency of content generation. 
  • Experience Manager Screens – Seamlessly edit and connect online and in-venue advertisements and signs.
  • Acrobat Signs – Allows for e-signatures on PDFs.
  • Experience Manager Forms – Build simple as well as complex contact forms.
  • Advertising – Manage all advertising in one clean location.

The Publishing and Advertising products include:

The Print and Advertising segment contains legacy products and services that address diverse market opportunities including eLearning solutions, technical document publishing, web application development, and high-end printing. Adobe generates revenue by licensing technology to OEMs (Original Engineering Manufacturers) that manufacture workflow software, printers, and other output devices.

Step 4: Adobe News

➡️ Goal: It’s important to highlight important company-specific news as well as industry-specific news over the last month and year. We don’t need daily news on a company to make buy or sell decisions because we’re investors, not traders. Overall, we want sufficient news to understand where a company and industry are heading over the next year or few years.

This article from states that Adobe beat earnings expectations. The estimated EPS was $3.68 and the reported was $3.80. The estimated revenue was $4.62 and the reported was $4.66.

This article from lists 3 stocks that have a loyal customer base. Those stocks include Intuit, Adobe, and T-Mobile. Adobe is listed because the company added nearly 30 million new Creative Cloud subscribers in 2022, the new AI tool Firefly which allows content creators to edit photos and videos more easily, and the anticipated finalization of the Figma acquisition which is expected to close at a price tag of $20B.

This article from states The US Justice Department is working on a case to stop Adobe from buying Figma. The reason is, this could potentially turn Adobe into a monopoly. As stated in the article, “But in buying Figma, which companies use to design apps and websites and collaborate on ideas, Adobe would also be taking a rising competitor off the market.” Competition authorities in the US have become more willing to take a hard line on large companies’ efforts to expand. David Wadhwani, president of Adobe’s digital media business and a key figure in the Figma deal, told analysts on a conference call in December that “the regulatory process is proceeding as expected.” Adobe was busy with the Justice Department’s second request process as the federal agency examined the deal, he said. The Justice Department declined to comment. Adobe still expects to close the Figma deal in 2023, the spokesperson said.

Step 5: Adobe Competition

➡️ Goal: It’s important to understand who the competitors are and how their financials rank against this company. Try to find 5 other competitors to rank against based on Score. The best way to find competitors is to Google “XYZ competition” and replace XYZ with the company name. You can also go to Tykr and click on the “Similar Stocks” tab on each stock to see similar companies in the same industry.

Adobe (ADBE)

  • Summary: Watch
  • Score: 61/100
  • MOS: 0%
  • Share Price: $373
  • Fair Value: $439
  • Revenue: $17.4B

Apple (AAPL)

  • Summary: On Sale
  • Score: 61/100
  • MOS: 75%
  • Share Price: $147
  • Fair Value: $398
  • Revenue: $394B
  • Competitive Product Line: Video editing with Final Cut Pro is a competitive product to Adobe Premiere. 

Wix (WIX)

  • Summary: Overpriced
  • Score: 22/100
  • MOS: 0%
  • Share Price: $93
  • Fair Value: $85
  • Revenue: $1.3B
  • Competitive Product Line: Wix website builder is a competitive product to Adobe AEM but Wix is more suitable for small and midsize businesses.

Alphabet (GOOGL)

  • Summary: Watch
  • Score: 44/100
  • MOS: 61%
  • Share Price: $101
  • Fair Value: $194
  • Revenue: $282.4B
  • Competitive Product Line: Google Analytics is free and Google Analytics 360 is a paid version that is competitive with Adobe Analytics.

Shopify (SHOP)

  • Summary: Watch
  • Score: 50/100
  • MOS: 0%
  • Share Price: $44
  • Fair Value: $48
  • Revenue: $5.6B
  • Competitive Product Line: Shopify is an e-commerce platform that is competitive to AEM.

BigCommerce Holdings (BIGC)

  • Summary: Overpriced
  • Score: 33/100
  • MOS: 0%
  • Share Price: $8
  • Fair Value: $11
  • Revenue: $279M
  • Competitive Product Line: BigCommerce is an e-commerce platform that is competitive to AEM.

Ranking based on Score

  • Adobe – 61/100
  • Apple – 61/100
  • Shopify – 50/100
  • Alphabet – 44/100
  • BigCommerce – 33/100
  • Wix – 22/100

Step 6: Adobe 4Ms

➡️ Goal: All of our homework on this company leads up to the 4M checklist. A lot of investors only look at the numbers. Yes, it’s important to look at the first M (MOS) which is the math part of investing but it’s also important to look past the numbers and also look at the business, the competition, and the management. If all 4Ms pass, we should have high confidence in buying this stock.

✅ MOS: The financials are strong. Although the stock is Watch in Tykr, it has a score of 61/100 which is good. 

✅ Meaning: Adobe has both B2C and B2B SaaS revenue streams that support the design, marketing, and advertising industries. In other words, as long as companies will market and sell products and services, a company like Adobe will be needed. Adobe will most definitely be around for more than 10 years.

✅ Moat: As outlined above, there aren’t a lot of competitors. Yes, some product lines like Adobe Premiere and Adobe Analytics may have some competitors but the entire company on its own stands apart. The addition of AEM which primarily serves enterprise customers was a big win for Adobe. This has allowed the company to secure highly lucrative long-term contracts.

✅ Management: Shantanu Narayen has served as CEO of Adobe since 2007. He started his career in 1986 at a company called Measurex Automation Systems, which made computer control systems for automotive and electronics customers. Thereafter he went to Apple and worked in senior management positions from 1989 to 1995. He joined Adobe in 1998 as senior vice president of worldwide product development and held the position through 2001. From 2001 – 2005 he served as executive vice president of worldwide products. From 2005 – 2007 he served as COO before stepping into the role of CEO. Narayen was a key driver in turning Adobe into a SaaS company. Overall, he has excellent leadership experience that makes him a perfect fit for CEO.

Step 7: Is Adobe (ADBE) stock a good buy?

Adobe is an impressive company that has continuously innovated over the years. The big milestones included the shift to a SaaS model and the addition of enterprise products including AEM and Adobe Analytics. With the MOS, 61/100 is good. With the Meaning, the combination of B2C and B2B SaaS products has created a variety of healthy revenue streams. The Moat is probably the most impressive part of the company as they don’t have a lot of competition. As mentioned earlier, some products may overlap with other companies but this company stands alone. With the Management, Narayen has done an impressive job leading this company. If you like tech companies with a wide range of revenue channels, then Adobe is worth a look.

The Summary, Score, and MOS of this stock may have changed since the posting of this review. Please login to Tykr to see up-to-date information.

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