Adobe’s (ADBE) Generative AI Advances Are Driving Innovation Across its Products

Stock (Symbol)

Adobe (ADBE)

Stock Price

$508

Sector

Data is as of

Expected to Report

Company Description

Adobe Inc. is a software company. It offers a line of products and services used by professionals, communicators, businesses, and consumers for creating, managing, delivering, measuring, optimizing, engaging and transacting with content and experiences across various digital media formats.

Its segments include Digital Media, Digital Experience and Publishing and Advertising.

The Digital Media segment provides products, services and solutions that enable individuals, teams and enterprises to create, publish and promote their content anywhere. Digital Media segment is centered around Adobe Creative Cloud and Adobe Document Cloud.

The Digital Experience segment provides an integrated platform and set of applications and services through Adobe Experience Cloud that enable brands and businesses to create, manage, execute, measure, monetize and optimize customer experiences.

The Publishing and Advertising segment consists of products and services that address diverse market opportunities. Source: Refinitiv

Sharek’s Take

Adobe’s software is making the Internet work from videos, images, movies, ecommerce to marketing. The company has two main segments: Digital Media and Digital Experience:

• Digital Media is the largest division with 74% of total revenue. Last qtr, revenue grew 12%, year-over year. This division includes:
  • Creative Cloud is the gold standard for imaging design, video, and illustration abilities to tens of millions of people, including movie makers, content creators, and digital marketers. Last qtr, Creative revenue increased 11% year-over-year.
  • Document Cloud provides editing, sharing, scanning and collaborating with PDFs across desktops and mobile apps. Document Cloud has a Scan and Sign feature called Adobe Sign, that’s similar to Docusign. Last qtr, Document Cloud reported 18% revenue growth, year-over-year.
• Digital Experience is 25% of Adobe revenue. Revenue grew 10% last qtr. Includes Experience Cloud, a best-in-class solution for digital marketers that allows them to analyze data, build campaigns, and manage content.  Experience Cloud is comprised of:
  • Adobe Experience Cloud: for marketers to craft experiences to differentiate their brands and engage customers. Includes:
    • Marketo: marketing automation software for medium-sized businesses including software for online marketing, lead management and email marketing.
    • Magento: a cloud eCommerce platform that allows business owners to make their websites easily.
  • Adobe Advertising Cloud: to manage advertising across TV and digital formats.
  • Adobe Analytics: real-time analytics and audience segmentation across all marketing channels
• Publishing & Advertising is the 3rd division of Adobe. In the 4th qtr of 2020, Adobe created this segment, which combines the Print & Publishing segment with Advertising Cloud. Print & Publishing helped magazine, newspaper, and book publishers design layouts, graphics, and illustrations.

I believe ADBE is a tech stock that’s suitable for conservative investors. The stock currently has a Estimated Long-Term Growth Rate of 13% per year, and a reasonable P/E of 28. Although Adobe hasn’t paid dividends since 2005, management buys back stock. ADBE is part of the Conservative Growth Portfolio. I think profits — and perhaps the stock — could grow 12% to 15% a year long-term. Last year, Adobe was trying to acquire Figma, which allows multiple people to work on a project at the same time. But regulators would not allow the deal to pass. Adobe and Figma will try and work on other ways to partner up.

One Year Chart

The stock has lowered from $596 to $508 since last quarter. During that time, the P/E has gone from 33 to 28. My Fair Value is a 32 P/E, or $577 a share. So in my eyes, the stock has gone from being fairly valued to undervalued.

The Est. LTG is 13% this qtr.

Qtrly profit growth has been steady the past year.

Earnings Table

Last qtr, Adobe delivered 18% profit growth and beat expectations of 15% growth. Revenue increased 11%, year-on-year and beat estimates of 10%. 

• For its Creative business, 11% revenue growth was driven by new subscription growth, strong adoption of Creative Cloud All Apps across geographies and customer segments, and strong single-app customer demand in imaging and photography and the early traction of Firefly services.
• In its Document business, 18% growth was driven by the demand for Acrobat subscriptions across all customer segments and geographies and the continued growth of Acrobat Web.
• And under its Digital Experience segment, 10% growth was driven by the successful closing of transformational deals across geographies and verticals with large enterprises that choose Adobe to be their end-to-end Customer Experience Management Platforms.

Annual Profit Estimates increased this qtr.

Qtrly profit Estimates are 12%, 10%, 9%, and 9% for the next 4 qtrs. Analysts believe Adobe revenue will grow 12% next quarter.

Fair Value

Note the company has a November 30th Fiscal Year end.

Bottom Line

Adobe (ADBE) has been on a wild ride the past three years. The reason for the fall was the stock had a lofty P/E of 51 in August 2021. That was too high. So the stock digested its gains. In September 2022, the stock’s P/E was just 18 and that was around the bottom.

Firefly has been a huge boost to Adobe’s portfolio. This company has been one of the leaders of innovation in Generative AI. 

ADBE stock moves up from 13th to 8th in the Conservative Growth Portfolio Power Rankings due to the stock’s decline in price since last qtr. I sold ADBE from the Growth Portfolio on February 1, 2022 and the stock was $528 that day.

Power Rankings

N/A

Aggressive Growth Portfolio

N/A

Conservative Stock Portfolio

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