Adobe Systems (ADBE, Financial) has focused on a change of business model to increase its growth in the long run. As a result, its performance has continued to improve. For example, the Marketing Cloud solutions of Adobe are gaining strong industry analyst recognition. It was recognized as a leader in Forrester’s Web Analytics Wave report with excellent current offering, strategy, and market presence.
User satisfaction will power growth
Adobe has superb user satisfaction and retention, and Creative Cloud customers are expected to benefit from exciting new innovation in the second half of the year. There’s an increasing leadership of the company in the digital marketing category. Overall, Adobe is witnessing strength in shifting the installed base as well as expanding its market with new user adoption.
There was strong adoption of the full Creative Cloud offering in the Creative Professional segment, with acceleration expected ahead. Creative Cloud for team subscriptions is now a major percentage of overall subscriptions and is estimated to grow further with increased channel focus. Adobe is expanding the overall opportunity with its Photoshop/Lightroom offering targeting the photography segment.
Adobe expects Creative Cloud adoption to continue to accelerate in the second half of fiscal 2014 with achieving approximately 3.3 million Creative Cloud subscriptions by the end of the year, which is 300,000 higher than its target of approximately 3 million given while entering the year. Further, it forecasts to add 424,000 new subscribers to its Creative Cloud product.
According to CFO Mark Garrett, the company currently focuses to drive strong revenue and earnings growth with its market – leading cloud offerings.
Valuation
According to Yahoo Finance, the trailing P/E and forward P/E ratios of 129.88 and 33.11, respectively, represent robust cost cutting efforts by the company. However, the industry average is still better at 17.62. In addition, its competitors Apple (APPL). and Microsoft (MSFT) have much more promising P/E ratios of 15.45 and 15.62 respectively. The PEG ratio of 4.67, above 1 depicts slow growth as compared to impressive growth for its competitors Apple and Microsoft with ratios of 0.95 and 2.28 respectively, which are very close to the industry’s average of 1.45.
The profit margin is very nominal at 6.72%. The revenue per share and diluted EPS of 8.08 and 0.52 respectively indicates decline in earnings by the investors. The quarterly revenue growth and quarterly earnings growth of -0.80% and -27.80%, respectively, paints a gloomy picture. Apple has better growth of 5%. The current ratio of 1.87 is stable. Moreover, Adobe has satisfactory long-term growth as depicted by CAGR for the next 5 years per annum of 12.25% which is very close to the industry’s average of 15.26%. Therefore, investors can invest into the stock and expect promising returns.
