Adobe Systems Incorporated (ADBE) Buy or Sell Stock Guide

Last updated: Jun 12, '19

Are you looking for the analysis of Adobe Systems Incorporated (ADBE) stock? Are you wondering what the bulls and the bears say about it?

If so, you came to the right place. In this stock guide, we will share with you 12 reasons to buy and 9 reasons to sell ADBE stock. You’ll get a perspective on what the bulls and the bears say about it.

The analysis below may be also helpful to you if you have any of the following questions about ADBE stock:

  • Is ADBE a buy or a sell?
  • Should I sell or hold ADBE stock today?
  • Is ADBE a good buy / investment?
  • What are ADBE analyst opinions, recommendations and ratings?

Let’s start with the bull case. Here are the reasons to buy ADBE stock:

1. Adobe's products are the industry standard for creative professionals, creating a network effect and high switching costs.

2. Microsoft discontinued its Expression Studio, a direct competitor to Adobe's Creative Suite, after seven years on the market.

3. The subscription model for creative cloud should go a long way to eliminating price sensitivity for potential new users, providing a boost for growth.

4. The company's Creative Cloud package of software tools added more subscribers, which drove revenue. Also, its digital media segment revenue increased year over year. Moreover, management provided a strong guidance for the upcoming quarter due to higher demand for its Creative and Marketing Cloud products.

5. Adobe changed its business model from licensing to a cloud-based subscription model. The company moved its market-leading graphic design and productivity offerings to the cloud with the launch of Creative Cloud. Creative Cloud allows consumers to pay a monthly fee to subscribe to various Creative Suite applications like Photoshop, Illustrator, Dreamweaver and others.

6. Adobe continues to be the market leader in the Digital Media space. The company provides one of the best solutions in most categories of digital media design and publishing, including Internet and video. In fiscal 2017, total Digital Media ARR (Annualized recurring revenue), the key cloud performance measure, grew by $1.24 billion.

7. Acrobat is one of the company’s most successful product lines with a huge installed base of satisfied customers. Through Acrobat.com, the company offers a set of a cloud-based document and collaboration subscription services which include PDF creation, centralized online file sharing and contract signing solutions. There are currently many drivers of the Acrobat business.

8. Adobe entered the digital marketing space with the acquisition of Omniture. This is an area where corporate spending is on the rise. A number of trends are spurring this trend, including the increased adoption of cloud computing, social media and mobile devices, as well as the emergence of big data analytics.

9. Using its new cloud-based platform, Adobe is also diversifying into digital marketing services, offering data mining services, which help businesses to measure page views, purchases and social media sites. Adobe Marketing Cloud enables marketers to deliver personalized web experiences across multiple devices, manage multichannel campaigns and optimize media monetization. These services help businesses streamline marketing and products for targeted consumer groups, including chief marketing officers, chief revenue officers, advertising agencies, publishing executives and digital marketers.

10. ADBE quarterly revenue growth was 25.10%, higher than the industry and sector average revenue growth (5.34% and 5.21%, respectively). See ADBE revenue growth chart.

11. ADBE profitability is improving. The YoY profit margin change was 5.49percentage points. See ADBE profitability chart.

12. ADBE average analyst rating is Buy. See ADBE analyst rating chart.

Now that you understand the bull case, let’s look at the reasons to sell ADBE stock (i.e., the bear case):

1. A large number of legacy Creative Suite users have yet to migrate to Creative Cloud, a pool of customers Adobe is counting on for near- to medium-term growth.

2. Competition for Adobe’s marketing solutions will remain intense for the foreseeable future, with heavy hitters such as Salesforce.com, Oracle, and IBM jockeying for position.

3. Competition at the low end of the creative market will maintain pressure on Adobe to innovate, even if a full-feature competitive solution never materializes.

4. The dynamics of the business are changing rapidly as a result of the transition to the subscription model. The company is receiving lower upfront fees. Also, with the new model, the switching costs have gone down so it becomes easier for customers to switch to competing platforms.

5. Also, lower end-market demand could impact earnings in the near term. We believe that this is the result of weak global economic conditions, the unwillingness of the user to spend on the modified Acrobat software and softness in the core computing market. The company’s software runs on personal computers and server-based computers, as well as on smartphones, tablets and other devices.

6. Adobe has significant exposure to Europe, with the Europe, the Middle East and Africa (EMEA) region contributing around 28% of sales in the fiscal year 2017. Given the currency headwinds faced by U.S. companies operating in Europe, 2018 results will continue to be impacted.

7. Overdependence on a few products. While Adobe does have a presence in other areas and recent results have been encouraging, more than half the revenue continues to come from the Creative Cloud and Acrobat product lines. Therefore, softness at customers and/or success rates of new platforms have a significant impact on results.

8. ADBE Price/Book ratio is 13.41, and it’s high compared to its industry peers’ P/B ratios. See ADBE forward Price/Book ratio chart.

9. ADBE Price/Sales ratio is 13.84, and it’s high compared to its industry peers’ P/S ratios. See ADBE forward Price/Sales ratio chart.

Now let's look at the key statistics for ADBE:

Metrics ADBE
Price $310.08
Average Price Target / Upside $313.96 / 1.25%
Average Analyst Rating Buy
Industry Software - Application
Sector Technology
Number of Employees 21,357
Market Cap $148.40B
Forward P/E Ratio 39.3701
Price/Book Ratio 14.9767
PEG 1.8
Revenue (TTM) $10.10B
YoY Quarterly Revenue Growth 20.00728862973761%
Profit Margin 26.23762376237624%

What are your thoughts on ADBE?

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