Adobe Systems: worth a look

Investment Analysis Clubs Saul’s Investing Discussions
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https://www.fool.com/investing/2018/07/19/why-adobe-systems-…

As GM mentioned, Adobe has been growing at 25%, stock has 5x the past 5 years, and has fully transitioned into a SaaS firm. Last Q they did almost a $Billion in cash flow. Topline growth has accelerated from 2 to 15 to 22 to 25%.

'Subscription revenue growth remains robust, rising 30% year over year and approaching an $8 billion annualized run rate. Digital Media remains the firm’s key growth driver, rising 28% year over year. Management noted the firm has seen very little price elasticity following the Creative Cloud price hikes that were rolled out in the quarter, while international market adoption remains healthy.

The Document Cloud business continues to pick up steam as the subscription revenue base increases, with revenue rising 22% versus the prior-year period to $243 million. We were also heartened to see an acceleration in Experience Cloud subscription revenue, which rose roughly 25% in the quarter to $469 million.’
~ Morningstar.com

Adobe is my 7th largest position, at just over 5%.

best,

Naj

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You are not concerned about the valuation?

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I recently struggled mightily and ended up selling ADBE. It’s great company but at a $124B market cap I just questioned it’s growth.

Market Cap bothered me on both NVDA and ADBE. Both fantastic companies. The question was “Could I construct rationale for NVDA to get to a $300B company… or ADBE to get to a $300B company?” Then I compared that to something like PVTL at a $6B market cap… could it get to $12B? I felt the smaller market cap companies in emerging areas had better growth prospects in share value.

For me, I wanted to get my portfolio more concentrated on high growth stocks. I want 12 holdings. ADBE ended up being ranked 14. I just felt I could get more growth from others. If I’d picked a threshold of 15… ADBE would been in there.

Hope that helps
Mark

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Adobe reported EPS:

'ADBE reported third-quarter fiscal 2018 non-GAAP earnings of $1.73 per share, beating the estimates of $1.69. Also, the figure increased 4.2% sequentially and 57.3% on a year-over-year basis…

Subscription revenues came in at $2.02 billion (88.2% of the total revenues), up 28.7% on a year-over-year basis…

The company operates in two reportable segments — Digital Media and Digital Experience.

Digital Media — This segment generated revenues of $1.61 billion, which increased 27% on a year-over-year basis. The segment comprises Creative Cloud and Document Cloud. Additionally, Digital Media ARR increased $339 million to $6.4billion, attributable to the transition made on Adobe.com from using U.S. dollar to local currency in certain markets.

Creative Cloud (CC) generated $1.36 billion of revenues, reflecting 28% year-over-year growth. Additionally, Creative ARR increased $289 million to $5.66 billion. The year-over-year growth was driven by robust performance of Adobe Stock, as well as Stock and collaboration services. Moreover, improving average revenue per user (ARPU) across key offerings and increasing net new subscriptions drove the top line of CC. Additionally, the company entered into various creative agreements in the reported quarter and most of them included service offering that drove the creative ARR.

Digital Experience — This segment generated revenues of $614 million, which increased 21% on a year-over-year basis. The segment includes Adobe Experience Cloud. The company recorded 25% growth in subscription revenues within the segment. Further, robust Analytics Cloud, Marketing Cloud and Advertising Cloud offerings, coupled with emerging solutions such as Audience Manager, Campaign, Target, and Media Optimizer solutions drove its top line.

Operating Details

Gross margin was 87.1% in the quarter, expanding 140 basis points (bps) on a year-over-year basis. The gross margin expansion was attributed to strong subscription revenues."

Adobe is now my #6 position.

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Adobe (ticker: ADBE) reported revenue of $3.23 billion, up 14% from a year earlier, and ahead of the company’s forecast at $3.15 billion. The Wall Street analyst consensus had been $3.16 billion. Non-GAAP profit was $2.57 a share, ahead of both guidance at $2.40 a share and Street consensus at $2.41 a share.

Revenue in its digital-media segment was $2.41 million, up 19% and ahead of the company’s projected growth rate of 16%. Creative-segment revenue was $1.96 billion, up 19%, while Document Cloud revenue was $375 million, up 22%.

Adobe said it repurchased about 1.5 million shares in the quarter.

For the fiscal fourth quarter, the company forecasts revenue of $3.35 billion and non-GAAP profit of $2.64 a share, in line with previous Street estimates at $3.36 billion and $2.64 a share.

“Adobe delivered the best [third quarter] in our history in a challenging macroeconomic environment, demonstrating the global demand for our innovative solutions,” CEO Shantanu Narayen said in a statement. “We are confident that our leadership in the creative, document and customer experience management categories will drive continued momentum in 2020 and beyond.”

CFO John Murphy said the quarter was driven by “growth in Creative Cloud and Document Cloud [annual recurring revenue], Digital Experience subscription revenue and record operating cash flows.”

Adobe is up 51% YTD and 76% LTM, not including after-hours.

Up to my #5 position.

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