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Adobe Is an Underrated Software Company

There is a transformation happening in the business world. A digital transformation. Companies are making the switch to the digital world to become more efficient and intuitive. According to tech researcher IDC, $10 trillion is forecasted to be spent on this digital transformation from 2019 to 2024.

Adobe -- which focuses on cloud-based creativity, marketing, document management, and customer engagement software -- is set to benefit from this digital transformation budgeting that many companies are only just beginning to make. Adobe has already been taking a piece of that pie. Sales in the last 12 months were $15 billion.

Adobe has grown its revenue at a double digit percentage rate over the last several years, and management expects it to continue.

  • They forecast sales for the last quarter of fiscal 2021 to be $4.07 billion, a 19% year-over-year increase.

  • It’s been generating operating profit margins of well over 20% over the last decade, and operating margin was at 36% over the last 12 months.

  • As of September 3, 2021, Adobe had $6.16 billion in cash and equivalents on the books (reduced slightly by a couple recent acquisitions), offset by debt of only $4.12 billion.

  • They spent $1 billion on share buybacks (like dividends, another form of cash return to shareholders) during Q3 of fiscal 2021 alone.

Given the extensive suite of subscription-based creativity and data management software Adobe offers, the high profit margins should hold as new and existing customers continue to spend with the company.

Clearly Adobe is still in growth mode and already generating substantial profits. With the digital transformation era in its early stages, Adobe is in a key position to help its customers in this digital movement for several more years. It is a core holding in our investment portfolios.

Content in this material is for general information only and is not intended to provide specific advice or recommendations for any individual. Our investment philosophy takes a forward-looking approach that may not transpire. The economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful. Investing involves risk and you may lose your principal.


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