Adobe: A Digital Powerhouse With The Potential To Double By 2025

Aug. 28, 2020 9:48 AM ETAdobe Inc. (ADBE)15 Comments
Trevor Jennewine profile picture
Trevor Jennewine


  • Adobe is the third largest Software-as-a-Service (SaaS) provider in the world in terms of revenue, behind only Microsoft and Salesforce.
  • Adobe’s portfolio of cloud-based software applications leverages machine learning and artificial intelligence to empower a diverse user base.
  • Adobe estimates its total addressable market will be ~$128 billion by 2022, indicating enormous growth opportunity in the years ahead.
  • Adobe's financial performance has been exceptional in recent years.
  • Adobe is a strong buy.

Investment Thesis:

Adobe (NASDAQ:ADBE) offers a wide range of cloud-based software applications that enable users to create digital media and provide personalized digital experiences. In an age of digitization, Adobe’s products have an enormous total addressable market, making Adobe a very compelling long-term investment.

My investment thesis can be summarized as follows:

(1) Adobe's products enable businesses to create and publish digital content and provide audiences with personalized digital experiences. There will be enormous demand for these products in the coming years.

(2) Adobe’s Software-as-a-Service business model generates strong recurring revenue, with exceptionally high gross margins (mid-80%).

(3) Adobe has consistently posted incredible financial results over the last five years, growing revenue at 21% annually and profits at 60% annually.

Adobe's Software:

Adobe is one of the most diversified software companies in the world. And at the end of 2019, Adobe was the third largest SaaS provider in terms of revenue, behind Microsoft (MSFT) and Salesforce (CRM).

The chart below shows Adobe’s three business segments:


Source: Created by the author using information from Adobe 2019 10K.

Adobe focuses investments on two of these segments: Digital Media and Digital Experience.

The Digital Media segment includes cloud-based applications that provide creative professionals with tools for designing, creating, and publishing creative content. Customers include a variety of creative professionals, from photographers and video editors to graphic designers and game developers. The graphic below depicts some of Adobe's Digital Media products.

Adobe Creative Cloud

Source: Adobe Investor Presentation (January 2020).

The Digital Experience segment is an array of cloud-based applications built on Adobe's artificial intelligence platform, Adobe Sensei. These applications provide functionality in analytics, marketing, advertising, and commerce - all of which are aimed at managing customer experience. Customers of this segment include advertisers, marketers, merchants, data scientists, and developers. The graphic below depicts some of Adobe's Digital Experience products.

ChartData by YCharts

ChartData by YCharts

This article was written by

Trevor Jennewine profile picture
PharmD OSU/OHSU, BA Miami (Oxford) UniversityI am a growth-focused individual investor. I place equal focus on qualitative and quantitative research. One of my core beliefs is that the best way to generate market beating returns is to buy high quality companies and, provided the investment thesis remains intact, hold them for long periods of time.

Disclosure: I am/we are long ADBE. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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