For over 20 years, Adobe has been the leading provider of creative software. While most renowned for its flagship Photoshop product, Adobe offers an extensive portfolio of creative software solutions catering for a variety of traditional media forms and new-use cases such as animation, mobile app development and augmented reality. Beyond creative software, Adobe has also established itself as a leading provider of digital marketing and document management software. Adobe’s seamless transition to a subscription and cloud-based business model unlocked new opportunities beyond professional creators and marketers and resulted in the company generating high-quality recurring revenues, which now comprise about 90% of Adobe’s total sales.
The near-universal adoption of smartphones, proliferation of social media platforms and the increase in the time spent on digital channels have resulted in individuals consuming and demanding an ever-increasing amount of content. Concurrently, this has democratised content creation and distribution to a much broader audience including among hobbyists and non-professional creators such as YouTubers and TikTokers. These factors have driven double-digit growth for Adobe over the past decade as it has expanded its portfolio of applications to cater for creators of all proficiency levels.
By virtue of embedding itself in the curriculum of many design courses and programs around the world, Adobe’s Creative Cloud has become the industry standard software suite for professional creatives and marketers and is mission-critical to creative workflows. Adobe’s strong brand results in it having a highly efficient and scalable direct go-to-market strategy, with its website, Adobe.com, being the primary source of new customer acquisition.
Through acquisitions, Adobe has assembled the most comprehensive and integrated suite of digital marketing and commerce solutions, which it calls its Experience Cloud. Adobe’s high mindshare among marketers and native integration with its content-creation software confer numerous advantages to Adobe’s Experience Cloud. The Experience Cloud enables marketers to create, edit, promote and optimise marketing campaigns and digital experiences for consumers centrally, streamlining workflows and reducing frictions for marketers.
In digital marketing and commerce software, Adobe has formidable competitors in Microsoft, Salesforce, Shopify and SAP, but we believe the highly fragmented nature of the market and large addressable opportunity will enable all players to thrive.
Adobe was one of the pioneers of the software-as-a-service business model and has transitioned seamlessly to the cloud. The disruption of traditional advertising such as TV and print media to new formats such as online video, search and streaming should have minimal impact on Adobe, as the creative assets developed with its tools can be distributed on all digital channels.
Increased scrutiny on how organisations use and monitor customers’ personal information has resulted in new privacy laws and regulations such as GDPR being adopted in many different jurisdictions, in addition to the large technology companies such as Google and Apple improving what data is collected and how it is tracked on their phones and browsers. Adobe is a net beneficiary of these changes, with the company ensuring that customers using its Digital Experience product suite to manage customer data can remain compliant with all relevant laws and data privacy sensitivities – a further comparative advantage for the business.
Adobe, like many software companies, has low carbon emissions and has little direct impact on the environment. Adobe is already carbon neutral with the target of being 100% renewable by 2035. Adobe is deeply committed to ensuring that its creative software is not misused for the creation of “Deep Fakes” and spread of misinformation. In 2019, Adobe launched the Content Authenticity Initiative with the mission to increase trust and transparency online by developing an industry-wide framework to ensure content is properly accredited to its creators. Finally, Adobe is well positioned on social and governance risk areas thanks to active employee engagement and management acting as advocates for shareholders.
In summary, we view Adobe as possessing strong moat characteristics and a beneficiary of numerous structural tailwinds as individuals consume an ever-increasing amount of content, and organisations are being required to provide consumers with highly personalised digital experiences.