Adobe Is Well-Positioned For the Golden Age of Creativity

One of the less-known tech winners of the pandemic, Adobe Inc ADBE, has been rightfully named as Microsoft Corporation MSFT of creative software. Both titans benefit from a powerful competitive advantage built on the network effect and unique software. The software design maker seems well-positioned to benefit even more from the new habits of the post-lockdown world.

No Viable Competitor

Although a photographer can use Apple Inc's AAPL free photos app that comes pre-installed on the company's devices, the editing futures of Photoshop or Lightroom cannot be found elsewhere which is why many users gladly pay a symbolic monthly fee.

In other words, competitors keep failing to breach its network of programs that perform marvelously together. The addressable market is massive as it is estimated at $147 billion. Moreover, the company generated $15.1 billion in revenue over the past four quarters and is no longer a small growing company with a market cap of $287 billion.

Figures

The third-quarter results were one of Adobe's strongest with record revenue of $3.94 billion, representing a 22% YoYgrowth. The Digital Media segment generated $2.87 billion in revenue, a 23% YoY growth with creative revenue growing 21% YoY to $2.37 billion. Document Cloud revenue grew as much as 31% YoY as it amounted to $493 million. The Digital Experience segment brought in $985 million to the revenue table, growing 26% YoY whereas the Digital Experience subscription revenue amounted to $864 million, marking 29 percent YoY growth.

The top line translated to GAAP operating income of $1.44 billion, and non-GAAP operating income of $1.81 billion. GAAP net income amounted to $1.21 billion, whereas the non-GAAP net income amounted to $1.50 billion. As for diluted earnings per share, the GAAP ones amounted to $2.52 whereas the non-GAAPamounted to $3.11, representing YoY growth of 28% and 21% respectively. Cash flow from operations amounted to $1.42 billion.

In a nutshell, it was an outstanding quarter with Creative Cloud, Document Cloud and Experience Cloud continuing to transform storytelling, learning, and conducting business in an overly digital world.

Outlook

Management's fiscal Q4 guidance calls for Digital Experience to increase revenue at approximately 22% YoY, which is slightly faster than the Digital Media segment's 20%. The fact that 97% of the largest business revenue that is creative software is generated from subscriptions both keep the top line relatively stable as well as make forecasting earnings growth easier.

Since Its Inception, Adobe Has Been a Game-Changer.

Since the beginning, Adobe is investing heavily to enhance the features of its programs and make them more useful. It is continuing in this direction as it invests in artificial intelligence. machine-learning augmented reality, and 3D content. The long-term goal is to fuel the growth of new users as well as average spending per user by getting them to upgrade to higher-priced offerings. Adobe has a great opportunity over the next few years to gain additional business customers as investments in customer experience management increase.

Seasonality- A Non-Significant Hiccup

The software maker did close down 3% upon the latest third-quarter results but the slight pullback could be owed to CEO Shantanu Narayen mentioning "seasonality" during the earnings call, as interpreted by CNBC's Jim Cramer.

Takeaway

Creatives are Adobe's fans, with Premiere being the top choice for video and Photoshop for images, but offerings such as analytics, advertising, and e-commerce services have increased the company's appeal, with the document service becoming essential during lockdowns. In this golden age of creativity where everything is about content creation, Adobe is well-positioned to benefit from newly installed design habits with enterprises becoming increasingly reliant on its services.

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Image Sourced from Pixabay