The technological advancement of mobile devices should continue to stimulate demand for Adobe's creative cloud software that can be accessed across different devices. While Adobe's high valuation could limit returns in the near term, the explosion in digital content creation may take several more years to fully play out.

Currently, analysts expect Adobe to increase earnings per share at an annualized rate of 17.8% per year. Plus, about 97% of its creative software revenue - its largest business - is generated from subscriptions, which keeps the top line relatively stable and makes forecasting future earnings growth a bit easier. The main reason is that Adobe has a long runway of growth, with a long-term addressable market of approximately $147 billion. The stock looks expensive at first glance, trading at a high price-to-earnings ratio of about 49, but Adobe has consistently earned a high valuation for several years. It's noteworthy that management's fiscal Q4 guidance calls for Digital Experience to increase revenue at approximately 22% year over year, which is slightly faster than the Digital Media segment's 20%.

'We continue to see subscription revenue acceleration in Digital Experience as large and midsized enterprises increase their investments in customer experience management,' CFO John Murphy said on the fiscal Q3 earnings call.

Adobe already offered the tools to help businesses create a website, but, after the Magento deal, it has a more fully fleshed-out offering by helping businesses with order management.Īdobe has a great opportunity over the next few years to gain additional business customers. Adobe is investing more in implementing new features using artificial intelligence and machine learning with Adobe Sensei, as well as preparing for the growth in augmented reality and 3D content. The long-term goal is to drive more growth in new users and average spending per user by upgrading them to higher-priced offerings.Īdobe has also bolstered its e-commerce offerings for enterprise over the past few years with the 2018 acquisition of Magento. That's the power of the network effect.īecause of these advantages, Adobe's strategy is to keep investing in additional features to make its products more useful and work better together. Further, when customers share digital media created with Adobe, it encourages others to adopt Adobe's software to collaborate on projects.

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