Adobe Inc is an American multinational computer software company. Starting life as Adobe Systems Incorporated, Adobe specializes in developing software for the creation and publication of content such as graphics, photography, animation, and print.
With many investors asking if they should be investing in Adobe, we have taken a detailed look at the company and the investment opportunity.
What is Adobe?
Adobe’s flagship products include Adobe Photoshop, Adobe Illustrator and Adobe Acrobat Reader. Known as the Adobe Creative Suite, the bundle of their software solutions are available as a subscription software-as-a-service package called the Adobe Creative Cloud.
Since the company was founded in 1982 it has gone from strength to strength, today they have more than 22,000 employees and have become the go to software for the creative and design industries. With this in mind, investors are asking themselves if Adobe is a good investment and are considering whether they should buy Adobe stock.
Financial and metrics
Traded on the NASDAQ stock market, Adobe (NASDAQ:ADBE) launched its Initial Public Offering (IPO) in August 1986. While Adobe stock does not offer dividends it is widely considered an investment that can deliver good long-term returns.
In the last 12 months the Adobe share price has grown by just over 11.69%, in December 2020 it traded at $498 per share and as of December 2021 it is trading at $556.64 per share. While Adobe did experience a short dip in Q3 following the release of their third quarter earnings, the stock price has since recovered. Adobe’s current P/E ratio is 55.53 and the price-to-sales is 18.04, while it has an operating margin of 36.76% and the return on equity is 34.37% at the time of writing.
With a twelve month trailing revenue of 15.78B, Adobe has come a long way since its inception, once a small growing company Adobe now commands a market capitalization of 264.85B USD. Its transition to a software-as-a-service business strategy along with the continuous development of its core products and new offerings have helped to further cement its future in the creative and design industries.
In 2018 Adobe acquired Magento which helped bolster its e-commerce offering for enterprise. While Adobe has offered products to help businesses create a website, the Magento acquisition helped them improve their offering within this market.
It is anticipated that the Adobe software-as-a-service subscription model combined with their continuous product development will help them secure more additional business customers in the coming years.
Is Adobe a good investment?
As a S&P 500 Index company since 2005, Adobe is already a well-established software company and a popular investment choice amongst investors and traders. Recognizing the need to offer their creative suite on a subscription basis, the transition to a software-as-a-service has further enabled Adobe’s growth.
For many creatives and designers, a suitable alternative for Adobe’s flagship products such as Photoshop simply doesn’t exist. While there are alternatives available, many do not offer the same functionality or ease of use that Adobe’s customers have become accustomed to. This share of the market and being widely accepted as the best creative software for the creation and publication of content contributes greatly to Adobe’s success.
Their share of the market is further impacted by the power of their network, when a user shares digital media created with Adobe it encourages other to adopt Adobe’s software so they can easily collaborate on projects.
Looking to the future, Adobe are committed to investing in additional features that benefit their existing products and also help with creation of new products. Adobe Sensei uses artificial intelligence and machine learning to implement new features as well as planning for the growth of augmented reality and 3D content.
What are the risks of investing in Adobe?
While Adobe is undeniably a successful company, the market’s reaction to its recent third quarter earnings report could be a sign that is high valuation may be limiting its upside potential. Although the share price bounced back quickly, it will certainly have made some investors cautious about investing in Adobe stock.
Adobe's high P/E ratio of 54.25 makes the stock less attractive to value investors, but that is not necessarily the case for growth investors who see the potential for rapid growth for the creative cloud software business.
However, some analysts suggest that the growth of Adobe’s software-as-a-service offering is showing signs of slowing which could impede their future growth. Another factor for consideration is the high valuation of Adobe stock, many investors deem the stock to be a bit on the high side and they question how much higher it can actually go, or if in fact it will begin to fall either in the short term or the long term.
Is Adobe stock a buy?
All investments present an element of risk, an Adobe is no different. That said, Adobe’s solid position in the market along with its place on the S&P 500 Index certainly make it an attractive investment.
Couple this with the company’s continued investment in improving its core products and developing new products that utilize technologies such as artificial intelligence, machine learning and augmented reality and it’s hard to not see how Adobe could have a very bright future.
Investors considering buying Adobe stock must conduct thorough research to determine whether the investment fits with their own objectives and overall investment strategy to ensure they are making an informed decision.