Does Adobe Deserve a Spot in your Portfolio in 2021?

Adobe the Digital Marketing Leader

As millions of Americans continued to work from home in 2020 one company that has benefited from the subscription business of it’s software products is, Adobe (NASDAQ:ADBE). This has given a huge boost to it’s earning in 2020 and the company is poised to take the next leap forward.

As the tech industry reaped the most benefit in 2020, ADBE also surged by almost 60% from it’s March 2020 lows. It’s Photoshop and Illustrator products, makes this company a digital media leader. The subscription-based business provides a sustainable and predictable pipeline of revenue for ADBE as Well.

Transition and Transformation

Adobe has gone through a transition from a licensed software to cloud based service which has made Adobe one of the hottest technology stocks. The subscription-based revenue jumped 21% in 2020 to 11.63 billion which is almost 90% of the total revenue. The recent acquisitions of Magento (ecommerce technology firm), Marketo (B2B Marketing platform) and Workfront (a work management platform for marketers) has helped the company being the leader in the digital media platform service provider.

Some Metrics

With market Cap of 220 billion and P/E of 42.44 Adobe is a decently priced technology company. The stock is not cheap and at the same time does not have sky high valuations. Profit margin of 40.88% make this stock one of the most profitable tech companies in the US. The revenue for the trailing twelve months touched close to 13 billion. Total cash of 6 billion is going to help ADBE grow in an inorganic manner and at the same time may help the company withstand some short-term shocks. The current ratio of ADBE stands at 1.48, which makes the short-term financial position strong. Growth estimates for next 5 years is projected to be 17% which can provide some decent returns to the stock price.

Closing thoughts

As a global leader in the digital media platform service provider, Adobe’s success in future is going to be dependent on how it is going to successfully create alliances. Adobe has some of the most unique service offerings and the more alliances they create the more is going to be their reach to wider customer base. Recent alliances with Walgreens, Microsoft and ServiceNow have helped Adobe immensely. At the same time Adobe faces intense competition from Salesforce.com, Oracle and SAP who offer solutions for Marketing analytics, campaign management, customer engagement etc.

Also new entrants like BigCommerce, Twilio, DocuSign and Shopify challenge the digital media behemoth. The success of Adobe would be dependent on how it forges meaningful alliances with the trusted partners and at the same time being nimble and agile to compete with the young firms.